Mark Winston Griffith
Predatory Lending Solutions: You want ‘em, We got ‘em
Showing once again where the true source of leadership on banking issues is, the New Yorkers for Responsible Lending, a coalition of more than 130 organizations from across New York State, unveiled a model bill on Wednesday that would make it harder for predatory lending abuses to flourish.
The following are excerpts from a statement released by NYRL summarizing the model legislation:
At its core, NYRL's model bill includes an ability to repay standard, and addresses specific abuses in the subprime and exotic mortgage lending markets.
Key provisions of the model bill are as follows:
I. FOR ALL LOANS
* All lenders and loan officers shall be required to demonstrate the borrower's ability to repay
* Repayment ability for adjustable rate mortgages (ARMs) shall be determined both at the introductory rate, and at
the reset rate, and be based on a repayment schedule that achieves full amortization
over the life of the loan.
* Monthly payments for determining affordability shall include principal, interest, real
estate taxes, homeowner's insurance, assessments, and mortgage premiums.
* Lenders shall benefit from a rebuttable presumption that the loan was made with due
regard to repayment ability, if the lender demonstrates that at the time the loan was
made the borrower's total monthly debts, including amounts owed under the loan, did
not exceed fifty percent of the borrower's monthly gross income, and the lender
followed residual income guidelines established by the Veterans Administration. For
adjustable rate mortgages, the law takes into account the fully indexed rate for the
* Mortgage brokers shall be considered to be acting as the agent for the borrower, with
specified duties to the borrower.
II. FOR ALL SUBPRIME & EXOTIC MORTGAGES
* The law prohibits the following terms for all subprime and exotic mortgages:
* Balloon payments;
* Negative amortization;
* Prepayment penalties;
* Default interest;
* Mandatory arbitration;
* Modification and deferral fees;
* Financing of credit insurance;
* Loan flipping;
* Refinancing of special mortgages; and
* Yield spread premiums
* Lenders and brokers shall be required to disclose taxes and insurance payments, with each
disclosure of monthly payments. Lenders shall also provide borrowers with disclosures that
encourage them to obtain qualified mortgage counseling and compare loan rates and fees.
* Lenders shall be required to escrow property taxes and insurance.
* The law is enforceable by the NYS Attorney General, Banking Superintendent, or any party
to a loan covered by the law.
* Actual and statutory damages may be awarded; statutory damages shall be $5,000 per
violation or two times actual damages (whichever is greater). Injunctive relief to stop
unlawful practices, as well as declaratory and other equitable relief as the court deems
appropriate, may be granted. The court may award reasonable attorneys' fees to a prevailing
* The loan transaction may be rescinded if the lender is found to have violated prohibitions
against making unaffordable loans and/or negative amortization loans.
* Borrowers may assert defenses against loan purchasers ("assignees") that they could assert
against the original lender.
* The law includes good faith exceptions. No violation of the law shall be found if the lender:
* Notifies the borrower of the compliance error and provides and an opportunity to cure,
within 30 days of making the loan; or
* Can show that it failed to comply with the law because of bona fide error.
What's needed now are state representatives bold enough to adopt this measure and introduce it as legislation. Will the real leaders please stand up?