Mortgage broker group defines predatory lending– but some say it’s vague

Written by on August 17, 2004

At its 2004 Annual Convention last week, the California Association of Mortgage Brokers introduced the first definition for predatory lending that could become the model for the rest of the U.S.

CAMB has defined predatory lending as "intentionally placing consumers in loan products with significantly worse terms and/or higher costs than loans offered to similarly qualified consumers in the region for the primary purpose of enriching the originator and with little or no regard for the costs to the consumer."

A clear, universal definition of the practice may be the right conduit for stronger regulation and stricter penalties for predatory lending practices across the nation. Previous attempts to codify anti-predatory lending laws at the state level have been sporadic. In Georgia, mortgage lenders left the state in droves rather than face arcane penalties until the state legislature changed the law last year. However, Massachusetts was able to enact its Predatory Home Loan Practices Act (House Bill 4880) on Aug. 9.

On the national level, five federal anti-predatory lending bills have meandered through Congress over the past two years and none of them have made it to the President's desk. Even the Office of the Comptroller of Currency has attempted to preempt state laws to prevent a patchwork of differing standards among banks.

Whether or not the rest of the U.S. adopts the definition, CAMB seems to be taking a street-level approach to solving the problem that has plagued the mortgage industry for years and recently wiggled its way into the 2004 presidential campaign with both camps vowing to fight "unscrupulous real estate practices."

The group hopes that by pinning a description of such practices, consumers will be able to recognize it when applying for loans. In addition, to champion the highest standards of industry professionalism, CAMB also provides mortgage originator "Best Practices" manuals that provides brokers with guidelines on how to educated consumers as well as how to report predatory practices.

"We expect members of our industry to conduct themselves with the highest levels of integrity and to educate consumers about the lending process and how it should be wisely to help people achieve their financial goals," CAMB President Jon Eberhardt said.

However, many of California's fair lending groups oppose CAMB's new definition of predatory lending, calling it "too narrow and harmful to efforts to meaningfully address the problem."

Specifically, groups such as the National Fair Housing Alliance, Inland Fair Housing and Mediation Board, the National Housing Law Project and 15 others, say, "neither the discriminatory intent nor the primary purpose of the originator is required for a fair housing violation to have occurred, and these subjective standards are not prerequisites for predatory lending."

The groups argue that CAMB "appears to legitimize" abusive loans made by originators who discriminate equally against all borrowers and that identifying only "originators" fails to acknowledge others involved in the transaction whose actions may make a loan predatory, including brokers, appraisers, lenders, loan officers, real estate agents, escrow agents, and title company workers.