Partners (Summer 2000)

Trade Association Perspective
on Predatory Lending

The Mortgage Bankers Association of America is a national association representing the real estate finance industry. Among other goals, they “work to ensure that federal legislation and regulation provide for safety and soundness, and consumer protection, without undue burdens and costs on private industry or on consumer choice.” The MBAA has published a “Position Paper on Predatory Lending: An Opportunity to Benefit All Consumers Through Comprehensive Mortgage Reform,” which is excerpted below. Their web site,, contains the full text of this paper.

When used appropriately, subprime lending makes homeownership possible for families who might not otherwise have access to financing. While the vast majority of lenders who make subprime loans provide a valuable service, a few unscrupulous operators take advantage of vulnerable consumers by charging excessive fees, using deceptive practices, and imposing debt that the borrower will never be able to repay.

The Mortgage Bankers Association of America (MBAA) is an active participant in the dialogue with Congress, federal agencies, and consumer advocates concerning abusive lending. As a member of the HUD/Treasury Joint Task Force on Predatory Lending, the MBAA is working closely with all of these parties to formulate solutions that work.

The MBAA believes that the heart of the problem is the complexity of the mortgage transaction, which allows unscrupulous operators to exploit the process and take advantage of consumers. That is why the MBAA has developed a seven-point comprehensive approach to reform the mortgage process and increase consumer protections.

This approach combines increased disclosures to borrowers, a simplified mortgage transaction, more consumer education and counseling, a commitment to fair lending practices, and increased enforcement authority.

Predatory Lending
1. Fully Enforce Consumer Protection Laws
Most cited abuses are illegal under current federal and state law. Consumer protection agencies should be fully funded and given the resources necessary to enforce these laws effectively.

2. Simplify the Mortgage Transaction to Protect Consumers: The Loan Closing Costs Guarantee
Pass legislation to establish a “Closing Costs Guarantee” program, which would require lenders to provide mortgage applicants with an up-front loan closing price guarantee. The lender’s guaranteed maximum loan closing price would be binding from the time of disclosure (prior to application) through the actual closing. The approach will enhance shopping while protecting from “bait and switch tactics.”

3. Increased Disclosures for Consumers
Required disclosures would include a mortgage information booklet detailing the process, protections, warnings on common abuses, information about mortgage counseling, and a loan closing costs guarantee disclosure.

4. Enhance Enforcement Tools/Provide Effective Remedies For Consumers
Identify, strengthen and enforce federal penalties against prohibited practices, such as steering borrowers to high-rate lenders, intentionally structuring high-cost loans with payments the borrower can not afford, requiring credit insurance, failing to report good payment on borrowers’ credit reports, etc. Also, provide and facilitate remedies for consumers, under law including the prohibition of final foreclosure without first ensuring the right of the consumer to list and make a good faith effort to sell the property [some exceptions apply].

5. Increase Availability and Quality of Counseling for Prospective Borrowers
The Federal Reserve and HUD should lead an effort to develop a uniform counseling program. The American Homeowner Education and Counseling Institute (AHECI), the MBA, and others should be involved.

6. Increase Consumer Education Programs
Support increased education, including financial literacy in the schools, to help potential borrowers make informed decisions.

7. Industry Commitment to Fair Lending Practices
Support fair lending initiatives, including a fair lending training program.

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