Senators pass bill to curb predatory lending
NASHVILLE (AP) — Mortgage companies would be liable for “unlawful conduct” by affiliated loan originators under a bill approved by the Senate on Thursday to curb predatory lending.
The bill would require mortgage originators, which offer and approve loans but then sell them to other companies, to register their affiliations with the state.
If the mortgage originator commits any wrongdoing during the loan transaction, the companies they represent would be subject to a $10,000 fine — up from the current $500.
Those violations include charging interest rates much higher than current market prices, instituting closing fees beyond those allowed by law, and “engaging in deceptive practices that put people at risk to lose their house,” according to sponsor Sen. Roy Herron, D-Dresden.
“The common theory is that … in order to correct the conduct (of predatory lenders) you have to get at the predator, not the predator’s minions,” Herron said after the 33-0 vote.
The poor and uneducated are particularly vulnerable to predatory lending. When they refinance home loans they can get thousands of dollars in cash. But their interest rates go up, broker’s fees are added onto the loan balance and payments increase. If they can’t make the higher payments, they can lose their property.
Herron’s bill would add several new grounds for state action against a mortgage originator, including underestimation of closing costs, delaying home closing for the purpose of increasing interest and attempting to intimidate a real estate appraiser.
The state also would no longer be required to give a mortgage originator 14-days notice before an audit.
“It gives meaningful teeth (to the state) for the first time,” Herron said.
Herron’s bill is the only action taken so far by the General Assembly to clamp down on predatory lenders.
Gov. Phil Bredesen’s administration had spent months working with consumer advocates and banking lobbyists on legislation to prevent homeowners from being duped into taking new loans packed with steep fees and high interest rates.
Those efforts unraveled earlier this year in light of federal regulations that are preventing the state from enacting laws against predatory lending.
State officials say the federal Comptroller of the Currency, John D. Hawke Jr., has been taking steps to reduce the portion of banks chartered by states so eventually all banks may be federal chartered.
In doing so, they say, he’s pre-empting all state laws over banking.
Herron says his bill is a small step toward what he hopes will be a bigger push next year for more stringent state laws against predatory lending.
“It’s not nearly all the pieces (we need) but it’s a good step forward,” he said.
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Read SB3455/HB3539 at Tennessee General Assembly, www.legislature.state.tn.us