The warning espoused by the mortgage business to beat back legislation aimed at reining in abusive lenders, namely that low-income borrowers will lose access to credit, has been debunked by two new studies.

In North Carolina, where the nation's first predatory lending law took effect in 1999, a report by the non-profit Center for Responsible Lending found that "subprime" lending to persons with blemished and sometimes deeply pitted credit has continued to thrive.

And on Wall Street, a report by Morgan Stanley & Co. has found that predatory lending laws have had no impact in any state or municipality where they have been enacted.

Nearly a dozen other states and several cities have now adopted predatory lending laws.

Disputing the findings, Armand Cosenza, president of the National Association of Mortgage Brokers, said that while the number of loan brokers who live and work in North Carolina may have remained static, the number of lenders actually willing to fund subprime loans in the state has declined.

In his home town of Cleveland, he added, 20 subprime lenders and one lender who deals only with A-rated credit-worthy borrowers closed their doors within two weeks after Ohio passed predatory lending legislation.

"There's no doubt that certain products are no longer available" in places were abusive practices have been banned, Cosenza said. "Some otherwise good loans can't get placed at all."

But in the Morgan Stanley telephone survey conducted earlier this summer, managers at 280 subprime branches reported that competition among mortgage brokers for loans remains strong, according to Ken Posner, an analyst with the brokerage house.

The firm surveyed branch managers because they tend to have the "best trench-level understanding of current business dynamics."

The Center for Responsible Lending study came to a similar conclusion after reviewing data collected under the Home Mortgage Disclosure Act, a finding its authors say "bodes well for other states" that want to control lending abuses within their borders.

"Now we know, based on official data reported to federal regulators, that the first predatory lending law in the nation is working to protect families...without drying up credit to low-income borrowers," said Eric Stein, a spokesman for the Center who urged lawmakers in other jurisdictions to consider the findings when considering their own laws to curb rouge lenders.

This year alone, Stephanie Shaw of Lotstein Buckman, a Washington law firm which recently resigned as NAMB's general counsel, said she has followed more than 140 separate initiatives offered in an attempt to restrain rouge lenders.

According to the North Carolina study, the state remained the sixth most active for subprime lending in 2000, with borrowers 20 percent more likely to receive such a loan than those in the rest of the country, the study found.

No major subprime lender has exited the Tar Heel State, the study also found, and every major lender that reported that reported new lending activity in any other state also reported making new loans in North Carolina.

What's more, the study estimates that consumers saved at least $100 million in lending costs in the first year since the landmark North Carolina law was passed.

Among other things, the statute bans the financing of single-premium life insurance premiums on second mortgages as part of the loan amount, prohibits refinancing when there is no benefit to the borrower, and outlaws prepayment penalties on loans under $150,000.

Researchers estimated that North Carolina borrowers saved $41.6 million on life insurance premiums alone, $29.7 million in prepayment penalties, $10.4 million in excess fees and $18.6 million in unnecessary refinancing.

They also said the savings attributable to the ban on financing life insurance premiums was a conservative figure. Because borrowers also pay unnecessary interest on the premium for the life of the loan, they said, the savings could easily be three times that amount.

"Don't estimate how big a rip-off it was," North Carolina Gov. Mike Easley said at a press conference in Raleigh where the study was released.

Published: August 21, 2002

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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.