Predatory Lending Legislation Can Prey

Extracted from a post by Brian Brady at BloodhoundBlog:

New Minnesota Attorney General, Lori Swanson, vows to put an end to predatory lending.  She formed an 11-member task force to come up with proposals to curb the practice.

That sounds pretty good unless you don’t know how to define predatory lending.  Arizona Governor, Janet Napolitano, pursued this fight back in 2000.  She was Attorney General Napolitano then and proposed that Arizona adopt legislation that mirrored the North Carolina predatory lending bill.  Napolitano had the good sense to listen to banking industry representatives before moving forward and was surprised with some of the things she didn’t know:

1- No “over equity loans”-  VA loans are 103% value loans when a buyer purchases a home; that got cast aside as Arizona has a large military presence.

2- No negative amortization loans- three staff members had loans on their homes that were considered a violation of that guideline.  They explained the usefulness of those loans as a financial planning tool.

3- No prepayment penalties- It was quickly realized that prepayment penalties reduce the overall costs of the loan and encouraged responsible home ownership by encouraging homeowners to view real estate as a long-term investment

4- No balloon payments- balloon payments can reduce the overall cost to the consumer and are now extendable with a good payment history.

This sounds like I’m an apologist for my industry; I’m not.

-- Brain Brady, BloodhoundBlog

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