While California mortgage brokers have agreed on what predatory lending is, a fair lending advocacy group has already voiced opposition to the "first-ever" adopted industry definition. The perspective of the California broker association that formulated the definition, however, is that it is a leap toward ending such a practice.
The California Association of Mortgage Brokers (CAMB) said it delivered Thursday its official definition of predatory lending at its annual convention in Long Beach.
The definition is as follows:
- "Predatory lending is defined as intentionally placing consumers in loan products with significantly worse terms and/or higher costs than loans offered to similarly qualified consumers in the region for the primary purpose of enriching the originator and with little or no regard for the costs to the consumer."
The definition resulted from CAMBs ongoing efforts with various industry organizations and leaders to clearly outline these practices so that consumers can be informed, educated and alert about predatory lending, the organization said.
"Getting a loan can be the most important financial transaction in a person's life, and we want to be sure that efforts to deliver the American Dream do not become a nightmare due to dishonest predatory lending practices," CAMB President Jon Eberhardt said in a written statement. "With this clear and concise definition of predatory lending, people can protect themselves and the industry can continue to help consumers become homeowners."
But, the definition was not clear and concise to fair housing and consumer advocate groups who objected it. The California Reinvestment Coalition issued a statement that said advocates urged CAMB to rewrite the definition and to "put their energies toward the passage of strong State Legislation that would go far to end predatory lending practices in California."
CRC says it is a nonprofit membership organization that promotes the economic revitalization of California low-income and minority communities, and works to end predatory lending practices that strip nearly $2 billion in equity from Californians each year.
The main opposition to the definition centers on "the narrowness and vague standards with which CAMB would define predatory lending," CRC said. "Specifically, neither the discriminatory intent nor the primary purpose of the originator is required for a fair housing violation to have occurred, and these subjective standards are not prerequisites for predatory lending."
Ambiguous phrases in the definition such as "significantly worse" and "with little or no regard for the costs to the consumer" set up indefinable standards, the advocacy group added.
"Worse, in looking to what kinds of loans are offered to other consumers in the region, CAMB appears to legitimize abusive loans made by originators who discriminate equally against all borrowers, or abusive loans made in areas that are overrun with predatory loans," CRC said.
Also, identifying only "originators," leaves out a number of industry actors who can also cause a loan to be predatory, such as brokers, appraisers, lenders, loan officers, real estate agents, escrow agents and title company workers, CRC concluded.
"We'd love to see anyone else's definition of predatory lending," CAMBs legislative chairman Michael Faust told MortgageDaily.com. "The consumer groups may have taken a poke at us yesterday, but we believe our definition covers what they talk about, we agree with them -- our definition covers discrimination, it covers excessive points and fees, and equity stripping.
"The reality is, is we're excited about working with [consumer groups] in the future to provide a definition that will work for them and work for the industry," Faust said.
Bringing forth the first definition shone light to the fact that an industry-accepted definition of predatory lending does not exist, he added, and "is the step in the right direction for everyone to protect consumers."
Bob Armbruster, president of the National Association of Mortgage Brokers (NAMB) said that in terms of a national uniform predatory lending standard, the definition is ambiguous, but his position is that CAMBs effort, as well as the opposition, are more of a state issue that stems from pressures occurring in California.
Currently, there is a law outstanding in the Supreme Court in Oakland that can determine whether municipalities will be able to pass their own predatory lending laws, Armbruster said.
Laws at the municipal level would only duplicate compliance issues, especially for national lenders, as they would have to comply with distinct sets of laws in each of the different California communities they conduct business in, Armbruster said.
Armbruster added that NAMB is still "working profusely on the national scene" for an industrywide uniform standard.