A new anti-predatory introduced last Thursday on Capitol Hill has set off a firestorm, pitting mortgage lenders against consumer advocacy groups. The bill, titled the "Responsible Lending Act of 2003," was authored by House housing and community opportunity chairman Rep. Bob Ney (R-OH) and co-sponsored by Rep. Ken Lucas (D-KY).

If enacted the bill would:

• Create a new federal watchdog "Mortgage Consumer Protection Board" that would oversee housing counseling programs and establish a national database of mortgage originators;
• Restrict lending terms and prescribe tougher disclosures for loans that exceed the interest rate and "APR" (annual percentage rate) thresholds, including points and fees, contained in the federal Home Ownership and Equity Protection Act (HOEPA).
• Pre-empt existing state and local anti-predatory lending statutes, thereby creating a uniform national standard for mortgage lenders.
• Require states to establish uniform licensing requirements for all mortgage brokers.

Though strongly supported by the mortgage banking industry, especially so-called "subprime" lenders who deal with borrowers with damaged credit, the Ney-Lucas bill attracted immediate criticism from consumer groups that specialize in low-income housing issues.

Maud Hurd, president of the community activist group, ACORN, called the bill "an outrageous attack on states rights." The ranking Democrat on the House Financial Services committee, Rep. Barney Frank of Massachusetts, also came out against the bill, arguing that if local governments wish to set tougher restrictions on mortgage lenders than federal standards require, they should be allowed to do so.

Controversial state and local anti-predatory lending laws recently enacted in some parts of the country go far beyond the existing federal HOEPA restrictions on "high cost" home loans. Whereas the existing federal rules have a threshold on interest rates of 8 percentage points above comparable Treasury securities and fees totalling8 points, Georgia state law sets the bar at just 5 points. In Los Angeles, the threshold in 4 points. The Georgia law also restricts balloon payments and extends legal liability for penalties to the ultimate investors in high-cost mortgages.

As a result of those restrictions, many large lenders--and investors Fannie Mae and Freddie Mac--have pulled out of the subprime mortgage business in Georgia. Last Thursday, giant Countrywide Home Loans announced it was ceasing all subprime operations in Georgia.

Lenders generally say they are not opposed to legislation regulating high-cost mortgages, but they cannot deal with a patchwork of conflicting local and state laws. Mortgage lending, they argue, is a national economic activity, and should not be subject to the political whims of city councils or state legislatures.

Ironically, the anti-predatory lending debate has forced participants into unaccustomed philosophical positions. Whereas liberal Democrats like Rep. Frank normally are suspicious of "states rights" arguments, associating them with politically-conservative positions, they now denounce national standards for mortgage lending. On the other hand, pro-business and politically-conservative who normally advocate statesÕ rights, now find themselves demanding federal pre-emption of those rights.

"It's a little strange for me to be saying no to federal standards," said Rep. Frank in an earlier interview with Realty Times, "but the look at the other (Republican) side. They are Jeffersonians when it suits them (pro-states' rights) and Hamiltonians (pro-federal rights)when it suits them."

The outlook for lenders and consumers in the wake of the Ney-Lucas pre-emption bill? Don't hold your breath waiting for this bill to come out of Congress. The proposal may pass the Republican-controlled House, but enemies await it in the more evenly-split and politically liberal Senate, where Democrats can block just about any legislation with a filibuster.

Published: February 17, 2003

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Kenneth R. Harney writes an award-winning, nationally-syndicated column on housing and real estate from Washington, D.C. He is also managing director of the National Real Estate Development Center, a professional education company. He is a past member of the Federal Reserve Board's Consumer Advisory Council, a committee that by federal statute reviews all Fed actions on home mortgage, consmer credit and banking industry regulation. He served as a member of the U.S. Department of Housing and Urban Development's Working Group on Computerized Loan Origination (CLO) systems, and is a member of the Editorial Board of the Fannie Mae Foundation's journal, Housing Policy Debate. He is the author of two books on mortgage finance and real estate.