Rep. Bob Ney, R-Ohio, has introduced compromise legislation to weed out abusive practices that are considered part and parcel to predatory lending.

The measure, which has the blessing of the National Association of Mortgage Brokers, would lower the threshold for high-interest, high-fee loans that are covered under the extended disclosure and reporting restrictions of the Home Ownership and Equity Protection Act.

It also outlaws negative amortization, prohibits prepaid installments, requires lenders to supply good as well as derogatory payment information on their customers to credit bureaus on a quarterly basis, and allows lenders to help borrowers who have fallen victim to violations of HOEPA. Currently, they must live with them.

The bill also calls for the federal pre-emption of any state law enacted to curb predatory lenders, who often prey on the elderly and unwary. But it doesn't go as far as the law enacted in North Carolina and most of those under consideration in as many as a dozen other states.

Robert Lotstein, general counsel for NAMB and several of its state affiliates, described the state proposals as "truly consumer unfriendly" because they would only serve to take away the opportunity for would-be borrowers to secure any kind of credit at all.

"Not only do they not make sense for the industry," Lotstein said, "they really don't help consumers."

One provision, a prohibition against including closing costs as part of the loan amount, is particularly onerous, the NAMB spokesman said. "If you take that away, many borrowers won't be able to refinance when it becomes attractive to do so."

Because of its stance, NAMB has been labeled as anti-consumer by consumer and community groups. But the Washington attorney said that's not the case at all. "Of course we're against predatory lending," he said. "But we need legislation that makes sense for all of us."

Lotstein said NAMB is for "substantive protections" but only "as long as they are narrowly crafted so they don't have unintended consequences."

The two principles the industry is looking for, he said, are certainty and uniformity. "Tell us how to comply and we will. Don't use terms like 'reasonable' or 'reasonably believe;' they are unacceptable invitations to litigation. And if the law in every state has different triggers, it will be a compliance nightmare. We need a to have single federal law that offers successful solutions for everybody."

Rep. Ney's bill also would require lenders to notify borrowers earlier in the process that they have 72 hours after they close on their loans to change their minds. Currently, the notice is provided at settlement.

But it also eliminates a requirement that borrowers be told both on the good faith estimate of loan fees and the HUD-1 settlement sheet that loan brokers are being paid by the funding lender as well as the borrower. These back-end fees, sometimes known as yield spread premiums, are somewhat controversial and have led to more than 150 suits against lenders. But Lotstein said the an explanation of how brokers are compensated is already provided early in the process and that further disclosures are unnecessary.

Rep. Ney, Deputy Whip in the House and a member of the Banking Committee, said his legislation represents a common-sense approach to the predatory lending issue. "By working together with consumers and industry," he said, "we can move forward in an effort to both promote home ownership and protection consumers from certain abusive lending practices."

Published: April 11, 2000

Use of this article without permission is a violation of federal copyright laws.

When Lew Sichelman first started writing about housing in 1969, he was the youngest real estate writer in the country. Now, 37 years later, he's one of the oldest -- and most decorated. He has been rated the top housing columnist in the country by the National Association of Realtors as well as by his peers in the National Association of Real Estate Editors. Indeed, NAREE has recognized his work on numerous occasions. One year - due to his advancing age, he can't recall which one - he earned top honors in the annual NAREE Journalism Contest in three out of the four major writing categories. It was the first time one writer has won so many NAREE awards in a single year. Known for his ability to make even the most difficult topics understandable, Sichelman also has been honored by the National Association of Home Builders and the Mortgage Bankers Association. He began providing in-depth coverage of and consumer-oriented information about housing and housing finance at the Washington Daily News, where he was real estate editor. He held that same position for nine more years at the Washington Star, which purchased the News in 1972. The Star, a so-called "writer's newspaper" which also had the misfortune of being an evening paper, was put out of its misery in 1981, and Sichelman, who had begun self-syndicating his column in 1978, decided to become a full-time columnist. Today, his column, "The Housing Scene," is distributed by United Media to newspapers throughout the country. He also is on the staff of National Mortgage News, an independent newspaper which is considered the bible of the mortgage business. And he writes for numerous other publications, including MarketWatch.com, where he answers readers questions once a week, Sports Illustrated (don't ask), RealtyTimes.com, BigBuilder and others. Sichelman is married, the father of five and grandfather of eleven.