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Regulation of lending industry more critical than ever

By: Jeffrey Freedman
The Buffalo News

After years of ignoring the predatory practices of the mortgage lending industry, the Congressional Subcommittee on Financial Institutions is finally turning its eyes to this issue. Chairman Luis V. Gutierrez, D-Ill., recently held a hearing to gather recommendations from regulatory agencies, consumer groups and from the mortgage industry itself regarding a bill called the Mortgage Reform and Anti- Predatory Lending Act of 2007 (H. R. 3915).

The same measure was passed by the House of Representatives in November of that year, but the bill was allowed to languish in the Senate due to lack of support by the Bush administration. As Gutierrez says, the time to establish national standards “that rein in the abusive lending practices that contributed to the current mortgage crisis and our overall economic problems” is long past due.

From the Main Street side, this bill protects consumers by:

  • Requiring lenders to enhance and clarify disclosures regarding the terms of loans.
  • Implementing more severe penalties for lenders who coerce borrowers into taking higher-priced loans.
  • Ensuring that lenders ask borrowers for documentation that shows they have a reasonable ability to repay the loans.
  • Ensuring a tangible benefit to borrowers who refinance loans.
  • Adding protection for renters who are living in properties that have been foreclosed.
  • On the Wall Street side, the bill would make investment firms liable if they buy, sell and securitize loans consumers can’t repay; and sets a national standard for assignee and securitizer liability.

I can only speculate that the depth of the recession we are now experiencing would be less had Congress seen fit to act on these regulations two years ago. While it’s true that Western New York has not been hit as hard as other areas by the subprime lending crisis, as a consumer bankruptcy attorney for more than 25 years, I have seen the human toll that results from predatory lending of all kinds; whether it be credit cards, home equity lines of credit or first or second mortgages. It’s unfortunate we had to reach this crisis before legislators realized that when we leave the banking industry to regulate itself, one motivational factor takes over — greed. Consumers deserve better. They deserve to be treated fairly by a lending industry that has rules to follow and consequences to pay if those rules are not followed.