Predatory lending laws get proposed by ambitious Attorneys General (like Lori Swanson of Minnesota)and
I come off sounding like one of two things: an industry apologist or a
libertarian whacko. I suppose I’m much more of the latter than the
former but I’d ask you to see past both my industry and political
afflictions and read why legislated loan guidelines just don’t make
sense.
Predatory lending legislation, while well-meaning, ends
up penalizing the very people whom it was meant to protect. Banks and
lenders simply refuse to lend in areas where the government legislates
loan guidelines. Ask a Cleveland Realtor about the exodus of sub-prime lenders from their fair city some 3-4 years ago. Georgians
will tell you that some lenders simply stopped lending in Georgia until
the state addressed their predatory lending legislation. North
Carolina celebrates it’s sixth year of “success” of its benchmark
predatory lending bill with a rising foreclosure rate and few lenders
prepared to give borrowers a second chance.
I posted Predatory Lending Legislation Can Prey Upon the Responsible
over on Bloodhound Blog today. Here I suggest that proposed
predatory lending legislation penalizes the 96% of the consumers who
borrow money and are not in in trouble. If you outlaw negative
amortization loans (as North Carolina did for high-cost borrowers) or
prepayment penalties (as many states have done), lenders just won’t
lend in your state. That is patently unfair to the consumer who does
know how to manage her affairs.
Dan Green, fellow former Philadelphian, (like me) and author The Mortgage Reports points out how the IL HB 4050 failed the consumer.
A down-on-his-luck borrower may lose over $100,000 in equity, equity he
spent a long time building, because the government decided that he
needed protection from those big, bad banks. Sad, indeed.
Should
state governments take the stance that if lender’s won’t play by their
rules they should just get the hell out of their state? They will,
which reduces a consumer’s options, lowers liquidity in an already
illiquid market, and ultimately drives home values lower. That, hurts
responsible homeowners.
I applaud new Minnestoa Attorney
General, Lori Swanson for her zeal to flush out the despicable practice
of predatory lending. I implore her commission members to focus on
penalization of the rogue originators rather than legislated loan
guidelines. Minnesotans can’t afford the latter.
READ: Lies, Lies and More Affordability Indexes (sic) by Sean Purcell.
(Un) Fair Lending Acts and Your Loss of Rights by Ken Cook
