The latest example of the conflict between PR and policy, concerns the effort to standardize loan rules nationwide.

Such legislation is needed, we're told, because puzzled and bewildered lenders can hardly keep up with the complexity of changing state rules. Remember, these are the same people who manage to assemble reams of mortgage documents that borrowers are supposed to read and sign in 20 minutes at closing.

When it comes to squeezing a dollar out of the poor, the illiterate and the financially troubled, our national goal is to leave no lender behind. If you don't believe it, take a look at the alleged Home Ownership Equity Protection Act of 1994 (Section 32 of Regulation Z, part of the Truth in Lending Act), the national joke that's supposed to protect consumers from the country's worst lenders.

The Federal Trade Commission says Section 32 requires extensive disclosure if the annual percentage rate (APR) is 10 percentage points higher then comparable Treasury securities. It also triggers disclosure requirements if total fees and points are the larger of $510 or 8 percent of the loan amount.

You'll notice that Section 32 says if you're a lender you have special disclosure obligations in limited circumstances. If you supply financing at obscene rates to people who are desperate, needy or illiterate, that's okay as long as you provide lots of paperwork few people can understand.

While Section 32 is both woeful and weak, it hardly impacts all mortgages. As the FTC explains, "The rules do not cover loans to buy or build your home, reverse mortgages or home equity lines of credit (similar to revolving credit accounts)."

Today, says the National Counsel of La Raza in a new report entitled, "Jeopardizing Hispanic Homeownership: Predatory Practices in the Homebuying Market," gotcha loans often include the following provisions:

• High Interest Rates: Interest rates higher than warranted by a borrower's credit risk.

• Packing: The financing of fees and second mortgages into the mortgage, often without the borrower's awareness.

• Mandatory Arbitration Clauses: Forcing borrowers to give up their right to litigate in the case that something is wrong with their loan. (Comment: In my view, the real problem here is not a requirement for mandatory arbitration, rather the requirements for arbitration by parties that are not independent within rules that are not fair. Resolving disputes by such groups as the American Arbitration Association would plainly not be an issue.)

• Asset-based Lending: Lending based on the value of the asset rather than on the borrower's ability to repay the terms of the loan.

• Balloon Payments: A short-term, fixed-rate mortgage which requires that the full balance be paid at the end of the term, often as short as five to seven years.

• Prepayment Penalties: A fee added to a loan as a disincentive to more rapid repayment or refinancing within a certain amount of time.

A study by the National Community Reinvestment Coalition (NCRC) released in May shows that "minorities, women, and low- and moderate-income borrowers across the United States of America receive a disproportionate amount of high cost loans.

"Across the country," says the report, "African-Americans received 18 percent of the conventional subprime loans but only 6 percent of the conventional prime loans during 2004. In contrast, whites received a greater percentage of prime than subprime loans. Whites received 55.3 percent and 66.4 of the subprime and prime loans, respectively. Disparities are also present by gender. Females received 36.8 percent of the subprime conventional loans, but just 28 percent of the prime conventional loans in NCRC's sample of 2004 loans. Males, in contrast, received a higher percentage of prime loans (67.5 percent) than subprime loans (59.8 percent)."

You can find strong consumer protection laws at the state level, at least among some states. The federal government could standardize lending to reflect tough state standards, but that's plainly not going to make well-funded PAC contributors happy. Low income households, when last I looked, don't seem to be on such contribution lists with any frequency.

Some of the new federal proposals would make it easier for lenders to charge prepayment fees. After all, if someone can repay a mortgage before the end of the loan term, maybe to get a better rate, lower monthly costs or because a house is being sold, you can sure see how that creates extra and unfair risk for lenders.

North Carolina, according to the Center for Responsible Lending, has sensible rules which prohibit predatory lending to a far greater extent than the limp federal regulations. The Center says the North Carolina rules have saved consumers more than $100 million in excess costs.

Interestingly, the Center also says that subprime lending in the state has gone up 40 percent since the rules were introduced, an observation which brings us to two important points:

• First, there are and should be subprime loans with high rates and tough terms because some borrowers have lousy credit and hideous re-payment records. As well, lenders have a right to make profits and limit risk; in their shoes, we would all do the same.

• Second, the North Carolina experience shows that it's possible to have both reasonable rules against predatory lending and an expanding market for subprime financing. Alas, the North Carolina law would be demolished under some national standard proposals.

Alternatively, if lender confusion is really the issue we need to address, then H.R. 1182 would help this unfortunate group. It would create uniform lending guidelines nationwide -- but don't bet that this bill will be passed anytime soon, or at all. The standards it would adopt for use across the country follow the regulations now employed in North Carolina.

Commercial banks, major beneficiaries of efforts now underway on Capitol Hill to create national loan rules, seem to be doing okay. In 2003, according to the Federal Reserve, FDIC-insured commercial banks managed to eke out $102.6 billion in profits. That's up only 14 percent from the $89.9 billion earned in 2002.

Meanwhile, on the other end of the financial spectrum, we've tightened the bankruptcy laws to make sure credit card companies can safely charge 18 to 21 percent. Corporate pension plans can be wiped out with a simple bankruptcy petition and now we want to weaken lending regulations to the point where the only practice we'll apparently prohibit is the use of someone's knees for collateral.

Makes you proud to see our federal government at work, protecting the little person. It does make you proud, doesn't it?

For more articles by Peter G. Miller, please press here.

Published: May 31, 2005

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Peter G. Miller, also known as OurBroker®, is the author of six real estate books -- including The Common-Sense Mortgage -- and is the original creator and host of America Online's Real Estate Center. Peter's weekly columns appear in more than 100 newspapers nationwide, he is also published in a variety of other media outlets and he is a frequent speaker at national events and conventions. Peter welcomes your questions, comments, and news releases via e-mail at .