Senate bill seeks safeguards against predatory lenders

2/8/2006

COLUMBUS - Efforts to get Ohio Republican leaders to extend consumer protections to so-called "predatory lending" will continue today with the introduction of a Senate bill that angers mortgage brokers with whom the GOP once sided.

The bill, with the general support of Democrats, would extend the existing Consumer Sales Practices Act to nonbank mortgage brokers and loan officers in an attempt to prevent homeowners from being duped into mortgages they can't afford.

The move would increase the authority of the attorney general and allow consumer victims to pursue lenders for deceptive lending practices in court - much as they do now for false advertising.

"What we're really hoping is that the mere threat of being sued under CSPA will change bad behavior," said the bill's sponsor, Sen. Joy Padgett (R., Coshocton). She is Attorney General Jim Petro's running mate for lieutenant governor.

"I recognize that homebuyers have an individual responsibility to steer clear of deals that sound too good to be true or avoid signing up for loans that they know they're never going to be able to afford," Ms. Padgett said. But she added that the attraction of the American dream can make some would-be homeowners vulnerable.

Ohio ranks first in the nation in terms of home foreclosures, and is one of just two states not applying consumer protection law to the mortgage industry.

Dubbed the Homebuyers' Protection Act, the Senate bill would require residential real estate appraisers to be licensed and would subject applicants for appraiser, broker, or loan officer licenses to federal criminal background checks.

"Are the legislators trying to protect consumers or just punish brokers?" asked Michael Matalka, president of the Ohio Mortgage Brokers Association. "If they're trying to protect consumers, why doesn't this apply to all loan originators? Why are they just picking on brokers who are doing two out of every three loans in the United States?"

Under the bill, employees of banks would be exempted, as well as any affiliate in which they hold a stake of at least 25 percent.

"We did not include banks because, frankly, we found out that they are not the problem, and they are already subject to many federal and state regulations," Ms. Padgett said.

Sen. Tom Roberts (D., Dayton) questioned whether the 25 percent threshold could be too low, allowing some lenders to escape both state and federal regulation.

Republican lawmakers have resisted efforts for years to extend the sales practices act to the mortgage industry, instead trying several other routes that they now admit didn't solve the problem.

"I think there were assurances from the industry that they would clean up their act," said Bill Faith, executive director of the Coalition on Homelessness and Housing in Ohio. "They didn't. The problem persisted."

Gov. Bob Taft has recently embraced the idea. House Speaker Jon Husted (R., Kettering) said some form of predatory-lending bill will pass the House this session.

"I want to make sure that it's on target, that it goes far enough to address the concerns, but it doesn't go so far that it restricts access to capital in this state and the people who need it," he said.

Contact Jim Provance at:

jprovance@theblade.com

or 614-221-0496.