MN House passes bill to nip abusive loan practices

03/30/2007

The House approved rules to combat mortgage lending practices that have been blamed for a surge in home foreclosures.


By Conrad Defiebre, Star Tribune
Last update: March 29, 2007


New rules to curb so-called predatory lending by some home mortgage brokers and lenders overwhelming passed the House on Thursday, despite some Republican complaints that the restrictions would reduce access to financing for disadvantaged buyers.

But House sponsor Jim Davnie, DFL-Minneapolis, said similar measures in other states "drive out abuses and fraud" that lead to foreclosures while leaving the doors to home ownership open for minority and first-time buyers.

Davnie's bill would require brokers and lenders to verify a borrower's "reasonable ability" to make payments before issuing a mortgage loan and prohibit refinancing without "tangible net benefit to the borrower."

It also would force mortgage originators in most cases to include estimates of property taxes and hazard insurance premiums in monthly payment quotations to prospective borrowers. And it would outlaw negative amortization loans, in which the principal amount increases over time, except for reverse mortgages that generate income for retirees.

Most of the new rules would not apply to banks and credit unions, which Davnie said are already covered by similar state and federal regulations. He said putting "common-sense standards" on independent mortgage brokers and lenders would create a level playing field in the industry.

Rep. Torrey Westrom, R-Elbow Lake, complained that the bill tells mortgage brokers to "do what they already should do" while limiting their ability to consider a borrower's credit history or integrity.

Another bill awaiting a floor vote would triple their initial license fees from $850 to $2,550 and from $450 to $1,350 for renewal, he said.

But Westrom was in the minority in the House's 124-9 vote to approve the bill. A Senate bill is awaiting a second committee hearing.