An Update on Arizona Predatory LendingRandy Howell, CRMSpredatory lending, AAMB
Unless you have been in a coma, you know that this past year has
been riddled with predatory lending initiatives nationwide. Thus
far, a total of 40 bills have been introduced in different states,
including five major metropolitan cities. So, where do we stand
today?
Arizona does not have a predatory lending bill pending in the
legislature; however, this does not mean that predatory lending is
not a problem in Arizona. Representatives from the Arizona
Association of Mortgage Brokers have met with Arizona Attorney
General Janet Napolitano and numerous other agencies over the past
seven months to address the topic of predatory lending.
As you might imagine, the initial sentiment by many individuals
outside the mortgage industry was to impose limitations on loan
products and fee structures. It was believed that because certain
loan characteristics placed some consumers in trouble, the solution
was to prohibit such activities. Suggestions by some law
enforcement agencies and consumer advocacy groups went so far as to
prefer eliminating prepayment penalties, negative amortization,
loans in excess of 100 percent LTV and balloon payments.
Unfortunately, a small number of individuals working in the
mortgage industry chose to abuse consumers with these loan
features. Over the past seven months, we have diligently explained
the value that each of these, and many other loan features, provide
to the consumer-at-large. Thus, other venues are being
investigated, including loan originator licensing and/or
registration, and mandatory consumer counseling when loan
conditions exceed certain thresholds.
Both of these recent criteria come with side effects. The
licensing of loan originators will, at a minimum, drive up the cost
of conducting business in the State of Arizona. Furthermore, unless
other laws are modified, the nationally-chartered financial
institutions will be exempt from state licensing. This means that
local businesses would be discriminated against. More importantly,
consumers could, and would be, exposed to lenders who might abuse
them through such a licensing loophole. Attorney General Napolitano
is currently prosecuting a company that fits into this
category.
The other alternative--mandatory counseling--has a great deal of
emotional appeal by many other participants at the discussion
table. While it may sound reasonable on the surface, AAMB is
concerned about the integrity of the counseling services. For
example, it has been suggested that these counselors advise
consumers regarding the applicability of loan products offered by
mortgage lenders, and refer them elsewhere if they feel there is a
potentially abusive loan underway. If you consider this for a
moment, you may find yourself asking the following questions:
1. What credentials do these counselors have that qualify them
to assess specific loan offerings?;
2. How is the right to financial privacy protected for our
consumers?;
3. Where would your customer be referred?;
4. What will prevent the counselor from steering the consumer
elsewhere for a referral fee?;
5. Who will pay for this "counseling"?; and
6. How much of a delay will be caused in the loan cycle?
These, and many other questions, still beg to be answered.
However, one thing is clear--we have a few bad apples in the
orchard and must help prune the crops.
The Arizona State Banking Department reported that they received
907 complaints in the past year, only 119 of which involved
licensed Mortgage Brokers or their employees. Considering the fact
there are 753 licensed brokers in Arizona, the complaint volume is
not particularly extraordinary; however, we should not be patting
ourselves on the back.
As professionals, we each have an obligation to assist our
legislators and regulators in eradicating predatory lenders from
Arizona. I ask each of you to aggressively report inappropriate
conduct within our industry.
In summary, we have two of the following choices:
1. Take the lead in reporting and eliminating the few scoundrels
that abuse consumers and skirt the intent of the laws; or
2. Have others dictate to us what products we can offer and how
much we may earn.
The choice is yours--make the right one. If you encounter
wrongful behavior in loan originating, immediately call AAMB
Executive Director Dorothy Dumnich at (623) 972-6180. We will make
sure the information is given to the proper authorities and that
our consumers, whom we consider our neighbors, are served
properly.
Thanks for doing the right thing.
Randy Howell, CRMS, is AAMB President. He may be reached
at (602) 395-8300 or fax (602) 395-8383.
