Legislators, Lending Industry Locking Horns on Foreclosure Solutions

Hamilton Journal-News - December 13, 2005

Hamilton Journal-News

By Lisa A. Bernard

BUTLER COUNTY – With Ohio leading the nation in foreclosures, state legislators and the mortgage lending industry are locked in heated battle over how best to protect consumers.

Since the late 1990s, Ohio’s foreclosure rate has soared to three times the national average, with more than 59,000 filings in 2004, according to the Ohio Supreme Court.

Among the state’s most populated counties, Butler County ranks fifth in home loan defaults, according to a report by Policy Matters Ohio, a Cleveland-based research group.

The troubled climate, some officials say, is compounded by weak laws governing the mortgage industry which have fueled deceptive and unfair lending practices.

“It’s one of the leading contributors that force people into foreclosures,”
said Sen. Gary Cates (R-West Chester) of predatory lending. It’s something we want to address.” Predatory lending encompasses a variety of abusive lending practices, such as charging excessive fees and points and steering consumers into more expensive loans.

Bills in the Senate geared toward curbing predatory lending would bring the mortgage lending industry under the scrutiny of the state’s Consumer Sales Practices Act.

The proposals – Senate Bill 185, introduced by Joy Padgett (R-Coshocton) and companion bill 162, introduced by Tom Roberts (D- Trotwood) – would allow consumers to sue lenders and possibly rescind deceptive loans.

Some say the measures are sorely needed.

“We’ve been working on this for six years and the legislature has failed to protect consumers through a variety of mechanisms all this time”
said Bill Faith, executive director of the Coalition on Homelessness and Housing in Ohio. Forty-eight states already regulate mortgage lending under consumer practices laws, he said.

“It’s like the wild west out there,” Faith said. “They are preying on vulnerable people anyone they can strip equity away from they’re going after.”

Some mortgage industry advocates, however, have resisted such regulations, arguing that the proposals fail to protect those backing the loans.

“The main thing we are opposed to is having (mortgage loans) under the consumer sales practices act,” said Karen Stypinski, president of the Ohio Mortgage Bankers Association.

“Because the proposals would allow consumers to rescind loans made deceptively, mortgages sold on the secondary market would be in jeopardy,” she said.

“It would really hurt our industry,” she said. “We can’t buy loans because we don t know if 10 years down the road from now if we’ll have to rescind that loan and the borrower walks away.”

Stypinski also argued that laws already on the books to protect consumers are not being enforced to their potential.

“You actually have two bills that have been in effect, but the department of commerce’s hands are tied because they re not able to enforce those laws,” she said of a predatory lending law passed in 2002.

In November, the state controlling board approved an additional $1.5 million in spending this fiscal year and another $1.5 million next fiscal year to fund an additional 14 positions for regulating the mortgage broker industries and other consumer finance industries, according to a spokesman with the Department of Commerce.

Stypinski said she is doubtful that all the new positions will be applied toward enforcement. OMBA is working on alternative legislation to propose to lawmakers in lieu of 185 and 162, Stypinski said, but
declined to give details.

“We just want to make sure that it s going to be a win-win situation for everybody the lenders and the borrowers,” she said.

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