Ohio Attorney General Jim Petro has proposed new rules to crack down on predatory lending in the state — a practice where lenders use dicey sales tactics to target certain borrowers with expensive loans.
The state official on Friday proposed new administrative rules defining unconscionable mortgage lending practices in Ohio, such as home loans that the customer cannot afford to pay, loans that do not provide a tangible net benefit to the borrower, and other predatory lending practices.
Ohio’s new Homebuyer’s Protection Act, passed with bipartisan support earlier this year, will take effect on Jan. 1, 2007. The law provides the attorney general with the authority to further define and prohibit unconscionable practices in mortgage lending.
“We are cracking down on predatory lending practices that have gone unregulated for years,” Petro said in a statement.
The rules are aimed at reducing and penalizing abusive lending practices committed by loan officers, mortgage brokers and non-bank lenders. The new law covers all residential mortgages, including first and second mortgages, refinancing and purchase money loans.
The proposal is also designed to foster “best practices” in mortgage lending and to provide guidelines to loan officers, mortgage brokers and non-bank lenders. This will help them accurately determine a consumer’s ability to repay a mortgage loan, assure that the loan provides the consumer with a net tangible benefit, and provide consumers with all information necessary to make an informed choice. Some of the factors that must be considered in this regard are credit score and credit history, debt-to-income ratio, expected increase in income, temporary income, and employment history.
The proposed rules also address:
- Factors that may not be solely or predominantly used to determine ability to repay a loan;
- Guidelines for determining whether a consumer received a reasonable, tangible net benefit to a refinanced loan;
- Prohibitions on sharing loan value or desired appraisal value with appraisers;
- Arbitration provisions that are unfair to consumers;
- Disclosures that suppliers must give consumers instructing them of their right to refuse to close if terms in contracts are not what they were promised;
- Information that must be provided to consumers about unfair, deceptive and unconscionable lending practices.
Petro is seeking public comment on the proposed rules before formally filing them with the Joint Committee On Agency Rule Review on Sept. 29, 2006.