While practically everyone in the mortgage business is trying to come up with a better term to describe abusive lending practices, California's lawmakers might just have solved the problem.

The most popular term for abusive practices, of course, is "predatory lending." Even lenders use the term, though they hate it with a passion. But in the new California lending law which took effect in June, the phrase is not even mentioned.

Indeed, the law establishes a new category of "covered loans" which aren't predatory as long as the originator adheres to provisions of the statutes as they pertain to covered loans, according to Lee Adler, director of government affairs for the California Association of Mortgage Brokers.

Of course, those who violate the law "could be said to be operating in a predatory fashion," Adler said recently. And toward that end, according to John Liberator, deputy chief of the California Department of Real Estate, the Golden State will soon "expand the scope" of its audits to verify compliance.

As long brokers follow the new rules, though, "no harm, no foul, no problem," says the industry lobbyist, who believes the word "predatory" is nothing more than a "term of art created by an astute PR person some time ago to put some sex into what was commonly called 'mortgage fraud' in order to stir emotions, get ink and draw political attention to abusive practices."

Maybe so, but no matter what language is used to describe the problem, more and more state and local governments are addressing the problem. In fact, brokers who initiate perhaps 60 percent of all home loans and the lenders who actually provide the funding can expect to face more laws aimed, either directly or indirectly.

"This is not an issue that's going away anytime soon," says Mary Pfaff, who, as manager of state government relations in Freddie Mac's Washington office, monitors state legislative and regulatory issues for the big secondary market company.

Pfaff expects at least three states -- Minnesota, New Mexico and Alabama -- to take up the cause next year. The issue also could be revisited in Rhode Island and Tennessee, both of which have set up commissions to study their alternatives.

These five states are in addition to the six or seven state and local jurisdictions which could still pass legislation before the end of this year, Pfaff said at the American Association of State Mortgage Regulators' annual conference in Chicago last week.

Among those that still may act are Michigan, where several bills are under consideration, and New York, where the governor has said he wants to sign legislation this year.

In addition, New Jersey is considering severe penalties and mandatory counseling, California could place a three-year moratorium on local predatory lending initiatives, Massachusetts could amend its present law, and New York City is waiting for state lawmakers to act.

So far this year, the Freddie Mac's state and local liaison officer reported, measures have been enacted in 15 jurisdictions to register or license loan originators in an effort to rein in rouge brokers.

All of those locales already had laws, as do a couple of dozen other places, she said. "There were no new states, but then, there's not that many left" which haven't passed some kind of licensing ordinance.

In the last three years, 10 states also have seen fit to license mortgage brokers and mortgage bankers as well as individual originators.

Connecticut, West Virginia and New Hampshire were the latest to enact such requirements, with Connecticut going a step further than most by establishing a new licensing category for "warehouse" lenders. These firms don't originate or fund loans; rather, they buy mortgages from brokers, hold them until they have a large enough block to obtain favorable pricing from investors but no more than 90 days, and then sell them on the secondary market.

Also, regulatory agencies in Delaware, Michigan and Georgia were given new enforcement powers this year. In Delaware, the authorities can issue cease and desist orders to unlicensed firms or individuals who are otherwise exempt from the state's rules. And in Michigan, anyone engaged in fraud can be barred from obtaining any type of financial services licenses.

Published: August 28, 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.