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Bank of America's Exit From Subprime Market Underscores Negative Impact Of State, Local Predatory Lending Laws

August 22, 2001

The decision by Bank of America to exit the subprime mortgage business underscores the problems created by the recent proliferation of state and local restrictions aimed at abusive lending practices. Bank of America's withdrawal will ultimately hurt the very consumers policy-makers were trying to protect. As reported in American Banker, consumer advocates agree. Robert Gnaizda, general counsel for the Greenlining Institute in San Francisco, said he thinks that the strict North Carolina predatory lending law-and legislative rumblings in other states-helped steer the company away from the subprime business. "It's not a loss, it's a disaster. B of A has the potential to be the most responsible and largest subprime lender," said Gnaizda.

MBA has long maintained that there is a clear distinction between subprime lending and predatory lending. Many state and local policy-makers, however, have failed to make this distinction and have pursued new restrictions on subprime lending. As a result, reputable lenders face a crushing burden of new legal, business, and public-relations risks if they remain in this important market segment. But these restrictions make it increasingly difficult for reputable lenders to do that. Moreover, these same restrictions constrain consumer choice and do little to stop the rogue operators that ignore existing laws.

MBA urges local, state, and federal lawmakers to work together to enforce existing consumer-protection laws. MBA believes this approach, coupled with consumer education, simplification of the mortgage process, and other outreach efforts, can help combat abusive lending without penalizing the legitimate lenders serving our communities. MBA stands ready to work with legislators and regulators on a solution to predatory lending that does not constrict credit to borrowers who need it most.

MBA is the national association representing the real estate finance industry. Headquartered in Washington, D.C., the association works to ensure the continued strength of the nation's residential and commercial real estate markets; to expand homeownership prospects through increased affordability; and to extend access to affordable housing to all Americans. MBA promotes fair and ethical lending practices and fosters excellence and technical know-how among real estate finance professionals through a wide range of educational programs and technical publications. Its membership of approximately 2,800 companies includes all elements of real estate finance: mortgage companies, mortgage brokers, commercial banks, thrifts, life insurance companies and others in the mortgage lending field. For additional information, visit MBA's Web site: www.mbaa.org.

Dave Warner

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