This is a printer friendly version of an article from GoUpstate.com
To print this article open the file menu and choose Print.
Article published Jul 31, 2005
In recent years, the financial services industry has developed new mortgage products to meet the needs of home buyers with imperfect credit. Because these riskier borrowers do not qualify for prime-rate mortgages, their higher cost loans are considered sub-prime.
The sub-prime mortgage industry has grown dramatically. In 1994, sub-prime lenders underwrote just $34 billion in mortgages. By 2004, this figure had ballooned to more than $600 billion. In 2004, more than one in five home mortgages was sub-prime.
Sub-prime borrowers tend to be first-time homebuyers or otherwise less sophisticated in their understanding of financial transactions. Some unscrupulous lenders have exploited these borrowers with predatory lending practices.
Some states and localities have acted to curb such practices, but the patchwork of conflicting state and local laws has increased the cost of borrowing and led to uneven treatment of borrowers, depending on their geographic location or the type of institution from which they borrowed. Now that the sub-prime lending industry has matured, it is time to create a national standard to improve fairness and efficiency in the marketplace. Greater efficiency will help to lower mortgage costs.
The bill that will most likely receive consideration in the U.S. House of Representatives in the coming months is the Responsible Lending Act. Also known as H.R. 1295, the legislation would establish strong national standards to curb abusive lending. Although it would replace the various existing state and local laws aimed at eliminating unscrupulous lending practices, it would retain state enforcement against this national standard.
The Responsible Lending Act creates a strong national, uniform standard with which every mortgage lender in the country would be required to comply. Currently, nationally chartered banks are exempt from state laws designed to provide consumer protections. H.R. 1295 would provide protection from abusive practices for all borrowers, no matter what kind of institution they borrow from or where they live.
There is a genuine need for strong, uniform national sub-prime lending standards with appropriate enforcement mechanisms that will protect consumers. Establishing a uniform national standard would help to ensure that consumers receive the same set of protections no matter where they live or from whom they borrow. A uniform national standard would also ease regulatory burdens, level the competitive playing field and ensure the affordability of loans for all consumers.
In drafting this bipartisan legislation, Congressman Bob Ney of Ohio and I wanted to provide as much or more consumer protection as is currently provided in three-quarters of the states, and I believe we have done that. The Responsible Lending Act therefore offers greater protection than is presently in place in many states. It is also more comprehensive than any prior legislative proposal in these matters.
Because the problem of abusive lending is complex, it also deserves a comprehensive solution. Beyond establishing uniform national standards, we need to improve housing counseling and better mortgage servicing. We also need to enhance appraiser independence and oversight and strengthen mortgage broker licensing and supervision. Unlike other less comprehensive legislative proposals, H.R. 1295 achieves each of these important objectives.
In sum, we need to ensure that all homebuyers and homeowners are appropriately protected in today's complex mortgage marketplace. H.R. 1295 is a good first step in guarding home buyers from abusive, deceptive and unfair lending practices. We now need to work together to make appropriate modifications to the bill to enhance its effectiveness and better protect all consumers.
Congressman Paul E.
Kanjorski represents the 11th District of Pennsylvania.