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A la mode Rises Like Mercury

National Mortgage Professional
Nov 15, 2002

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.
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