Key members of the House Committee on Financial Services may introduce new federal legislation on so-called predatory lending practices as early as today.
The bill will be designed to supersede a mishmash of state laws and regulations for banks, thrifts and other mortgage lenders that make loans to low-income or otherwise less-than-creditworthy borrowers.
After years of failed attempts at a federal law, industry representatives and consumer advocates said legislation could pass this year because both sides seem willing to deal on several contentious issues. Efforts to pass a federal law in the past have been torpedoed by the mortgage industry as too restrictive or by consumer advocates as not strong enough to tamp out abusive practices.
A spokesman for Rep. Robert W. Ney (R-Ohio) declined to comment on the mortgage lending bill that the congressman has been working on with Rep. Paul E. Kanjorski (D-Pa.) since October. Ney is chairman of the Financial Services Committee's housing subcommittee and has sought federal anti-predatory-lending legislation for several years. Kanjorski is the ranking Democrat on the committee's capital markets subcommittee.
The bill seeks to create a national framework governing what is known as subprime lending, typically mortgage loans with high interest rates, fees or other high-cost features designed to compensate lenders for dealing with higher-risk borrowers. In the past decade, to address abuses by some lenders that have locked borrowers into usurious rates, high fees or avoidable foreclosures, many states and more than a dozen cities have passed laws to guard against such abuses. But the industry, and some consumer advocates, have argued that a federal standard is required to reduce undue compliance burdens on lenders and to protect borrowers in states that have not passed their own laws.
Ney staffers held a telephone briefing yesterday morning on aspects of the bill but did not discuss details regarding several of the trickiest key issues, said several people who participated in the meeting.
"We're very supportive of uniform national standards," said Anne C. Canfield, executive director of the Consumer Mortgage Coalition, an association of large national lenders. "I'm sure there will be good elements in the bill. Other things we'll just have to wait and see what the details are."
Among the issues the bill will address are whether arbitration can be required in disputes between a lender and a borrower, the kinds of loans that would require increased borrower protection, and limits on onerous pre-payment penalties or balloon payments.
John E. Taylor, president of the National Community Reinvestment Coalition, a consortium of fair-lending advocates, said a federal ban on mandatory arbitration, which he believes often favors lenders over borrowers in disputes, will be the main sticking point.
"If it doesn't contain language that deals with mandatory versus voluntary arbitration, it's going to be a problem," Taylor said.