On the heels of a new report that says exploitive mortgages are costing Rhode Islanders $65 million per year, legislators involved in drafting the report are pushing for stricter laws to limit what they call “predatory” lending.
But the R.I. Mortgage Bankers Association calls the report’s findings “unsubstantiated,” and argues that proposed legislation would limit sub-prime lending and hurt the industry.
“It’s very restrictive,” said Jerome D. Margulies, president of Mansfield Mortgage Services, who represented the association on the Legislative Commission to Study Predatory Mortgage Lending Practices. The commission released its 83-page report on Feb. 7.
“While some aspects [of the proposed law] are pro-consumer,” Margulies said, “in the long run the availability of [loan] funds will be limited to some consumers.”
The commission was created in response to complaints about alleged predatory lending, and spent nine months holding hearings and studying the matter. It defined predatory lending as steering consumers into high-cost mortgages that they don’t understand and can’t afford.
The report says that because Rhode Island lacks proper controls, lenders are able to trick consumers here into unaffordable mortgages that cause them to pay exorbitant fees or lose their homes.
Thus far, predatory lending in the state has affected mostly minority and elderly residents, the report shows. Hispanic neighborhoods made up 28 percent of sub-prime mortgages in the state compared with 15 percent in predominantly white communities, the report says.
In fact, sub-prime loans made up 14 percent of the state’s total loan volume in 2003, the highest rate of such lending in the United States, according to a Mortgage Bankers Association report.
“There is a problem here in Rhode Island,” said Sen. Juan M. Pichardo, D-Providence, who co-chaired the commission with Rep. John J. McCauley Jr., D-Providence. “We concluded that we need to move forward to protect consumers.”
In a rebuttal within the report, the Mortgage Bankers Association says that the proposed legislation is premature, because the commission relied on third-party testimony from consumer advocates to base claims that predatory lending was on the rise. The group wants the commission to study the issue further.
“It’s not surprising that the industry that is making tons of money is going to oppose this legislation,” said Pichardo.
As of last week, the Senate Policy Office was writing legislation modeled on anti-predatory lending laws in Massachusetts and New Mexico, Pichardo said.
Margulies said the Mortgage Bankers Association is “still going to continue to talk to legislators and try to get amendments as necessary.”
Meanwhile, both sides agree on one point: Consumers need to be educated about predatory lending. The Rhode Island Housing & Mortgage Finance Corp. is leading the way on that front with “Don’t Borrow Trouble R.I.,” a public awareness campaign launched in October 2003, based on a model pioneered in Boston and promoted nationally by Freddie Mac.