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Predatory Lending
In recent
years, "predatory lending" has become a prevalent term among
regulators, legislators, consumer advocates, and, consequently industry as
well. What it means depends on who is using the term, but generally it
refers to (when discussing the mortgage industry) abusive practices in the
making and brokering of mortgage loans. NAMB is working to combat abusive
lending practices.
Mortgage brokers want to stop predatory lending
Predatory lending practices may provide temporary profits to one lender,
but they hurt all lenders by hurting consumers. This creates suspicion of
many other legitimate types of loans and loan originators. The vast
majority of mortgage lenders and mortgage brokers are honest and care about
their customers. As in any industry with bad actors, the mortgage industry
wants to weed out these unscrupulous lenders and brokers so that they
cannot prey on vulnerable homeowners, while avoiding actions that limit
consumer choice of loan products.
"Subprime" lending
is beneficial to consumers and NOT predatory
There is widespread confusion of the terms "predatory" and "subprime" lending. A "subprime"
mortgage is any mortgage that does not meet the standards of "A"
loans - generally, a loan that would not be eligible for purchase by Fannie
Mae or Freddie Mac. Usually a subprime loan is
one that is made at a somewhat higher interest rate to a borrower with
impaired credit. Subprime lending has enabled
thousands of families with lower incomes, less cash, and/or impaired credit
to become homeowners and to obtain financing for home improvements and
other expenses.
Many proposed federal and state laws that purport to
attack predatory lending would not necessarily stop the most harmful
practices, but could be harmful to consumers by restricting their choices
of loan products and terms
These proposed laws tend to focus almost exclusively on restricting rates
and fees, and prohibiting loan terms such as balloons and prepayment
penalties. Few of these terms are always abusive, and properly informed
consumers can benefit from them in many cases. Mortgage brokers believe
that blanket restrictions on rates and loan terms that are only rarely
abusive would serve only to restrict choices of loan products and terms for
credit-impaired and cash-poor borrowers -- a perverse result that would
actually harm the consumers these laws are intended to help. In addition,
such laws only add to restrictions on law-abiding lenders, while doing
nothing to stop the truly unscrupulous lenders who will just ignore the new
law.
Mortgage brokers are actively engaged in several
efforts to enhance consumer awareness and consumer protections against
predatory lending
NAMB was the first industry association to propose and initiate several
measures to stop predatory lending. These include:
Industry Self-regulation
NAMB is leading an industry effort to create a nationwide registry of
mortgage originators and companies. This will give mortgage industry
professionals a way to report unscrupulous actions by other lenders and
originators, so that other lenders will not do business with them or hire them.
NAMB was the first industry organization to adopt a set of Best Business
Practices for mortgage originators. This effort has now been expanded to a
major industrywide effort to implement and
enforce a broader set of business practice guidelines.
Consumer Education
NAMB supports a public information campaign to educate consumers about
mortgage pricing and terms. NAMB's Website
includes extensive consumer information and links to sites that provide
consumers a wealth of information they can use to make informed mortgage
choices. NAMB encourages its members to never originate a loan to an
uninformed consumer. NAMB has also dramatically increased educational
programs offered through the NAMB Education Foundation to its members, and
has revamped its certification program, to encourage all mortgage brokers
to be well informed about current laws and regulations.
Better Disclosures
NAMB and the Mortgage Bankers Association approved and have implemented a
Model Loan Origination Agreement that better informs consumers about the
role of the mortgage broker and how the broker is compensated. NAMB is also
participating in a task force with HUD, the Federal Reserve, and other
industry groups, which has been closely examining the statutory and
regulatory environment for several months and seeking to develop a
consensus on any additional measures that should be taken.
Mortgage brokers believe that existing laws should be
better enforced, and that this would eliminate a great deal of predatory
lending
We believe that most predatory loans involve fraud, which is already
illegal, and other violations of existing federal and state laws that
prohibit deceptive acts and practices. However, these laws have been poorly
enforced. Mortgage brokers support better enforcement of federal and state
fraud statutes and licensing laws, frequent regulatory examinations and
audits, and criminal prosecution of predatory lenders when warranted.
Mortgage brokers have led efforts in many states to enact new licensing
laws, tighten existing laws, and improve enforcement.
Mortgage brokers believe any new federal legislation
on predatory lending should be considered only in the broader context of
mortgage reform
One of the major problems in combating predatory lending
is that the confusing and conflicting disclosures and other rules required
by current laws prevent consumers from effectively shopping for mortgages.
A simplified, unified statute for mortgage lending would make the process
easier for consumers to understand and more transparent, reducing the
opportunities for deceptive practices and misleading disclosures and
enabling consumers to be better informed. NAMB led the mortgage industry in
initiating efforts in 1996 to seek a comprehensive reform and consolidation
of all federal mortgage lending statutes. We are concerned that enactment
of new predatory lending laws alone would only add to that complexity for
consumers without making the mortgage process simpler and easier for
consumers to understand.
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