Whether Ohioans are to gain more protection against fraud when they refinance a mortgage or buy a house depends largely on what the Ohio House does in the next three months.
Supporters of tougher mortgage-industry regulations scored a major victory last month when the Senate approved what they call the strongest anti-predatory lending bill to ever pass a chamber of the Ohio legislature.
Advocates for consumers and the elderly hope the momentum continues in the House, which starts hearings on the bill this week.
"Once they understand the bill better, I think their comfort level will rise," said Bill Faith, executive director of the Coalition on Homelessness and Housing in Ohio.
Mortgage brokers, lenders and other opponents have spent weeks lobbying the House. Some key House Republicans, including two leaders and a top policy adviser, are expressing concern or opposition to vital portions of the bill.
"This is certainly not something we can rubber-stamp and send down the pike," said Rep. John P. Hagan, an Alliance Republican and member of the committee hearing the bill. "The concern has to be making sure there is still money out there for people who don't have perfect credit."
Moved by stories of unsavory lenders preying on consumers, the GOP-dominated Senate shifted 180 degrees on predatory lending.
Past opponents of placing the mortgage industry under the Ohio Consumer Sales Practices Act suddenly supported the idea, or at least were neutral. The act gives borrowers more legal options and provides the attorney general with more power to go after bad lenders and brokers.
Fiduciary duty, the legal requirement that brokers and lenders act in a customer's best interest, also became a key part of the bipartisan proposal after years of rejection.
Meanwhile, the once-influential mortgage industry lost credibility with Senate leaders, who grew tired of passing industry-backed predatory-lending laws, such as one in 2002, only to see no improvement.
"We were told by the industry that what we did previously would solve the problem," said Sen. Robert F. Spada, a North Royalton Republican. "The consumer advocates had more credibility because what they said four years ago came true."
The Senate was deluged with dismal statistics, such as Ohio's No. 1 ranking in foreclosures.
Statewide, foreclosure filings rose faster in suburban and rural counties, those more often represented by Republicans, than in urban counties during the past six years, state Supreme Court data show. In Franklin County, foreclosures rose 71 percent compared with 158 percent in adjacent counties.
Sen. Joy Padgett, a Coshocton Republican who sponsored the bill, said the Senate reached a "tipping point."
Carl Boltz, vice president of the Greater Cincinnati Mortgage Bankers Association, wrote in an e-mail to Rep. Tom Raga, R-Mason, that when he trains mortgage brokers, he sometimes wants "to scream at the level of ignorance, greed and lack of any identifiable professionalism."
"I am shocked how many times during (continuing-education) classes and at other gatherings of mortgage brokers to hear them brag about very excessive fees that are forced upon so many good citizens."
But Boltz doesn't think Senate Bill 185 is the answer, contending that the state needs to do more to enforce current laws and shut down abusive lenders, rather than open the industry to more lawsuits.
"That bill is not going to do a damn thing other than just run some good people out of the business," he said.
Although they were steamrolled in the Senate, mortgage brokers and lenders, armed with powerful lobbyists and backed by the Ohio Chamber of Commerce, have regrouped and are telling House members that the Senate bill could wreck Ohio's home-lending market.
"Where I get frustrated is we are blessed to have the toughest mortgage broker act in the country," said Dayna Baird, who represents a trade group mainly of lenders that offer higher-interest loans to those with poor credit.
"It's frustrating that the law is not adequately enforced, or not enforced at all."
Speaker Jon A. Husted, a Kettering Republican, says the House will pass stronger consumer protections before summer break begins in late May. But he has not committed to details.
After sponsoring changes in 2002 that consumer advocates criticized as weak, Rep. Charles R. Blasdel, an East Liverpool Republican, headed a 2003 predatory-lending study panel to examine additional solutions.
He placed its recommendations into a bill that focused on licensing and education -- and went nowhere in 2004. He reintroduced the bill more than a year ago, but it has languished in the Financial Institutions Committee without a hearing.
Committee Chairman Christopher R. Widener, R-Springfield, said he plans to hold one hearing a week on the Senate bill at least through the legislature's spring break in mid-April.
"I know we do not want to weaken the bill," Widener said.
House Democrats, like their Senate colleagues, are expected to offer strong support for the bill if it's not weakened.
"Because of what's happening in Ohio, you can't argue with it," said House Minority Leader Joyce Beatty.
Blasdel said he has problems with how the Senate bill applies the Consumer Sales Practices Act and fiduciary duty to the mortgage industry, and he's not alone. Rep. Bill Seitz, a Cincinnati Republican and fellow member of House leadership, outlined a number of problems, including:
- Plaintiffs should not be allowed to collect triple damages or tear up their loan agreements, as permitted under the Consumer Sales Practices Act.
- Fiduciary duty should not apply to lenders, who also are expected to earn maximum revenue for their companies. Applying fiduciary duty to brokers may need more clarification to ensure a broker can work on behalf of a lender if he so chooses.
"Too often, brokers are creating the impression that they are working in the sole interest of the borrower, when in fact that's not true," Seitz said.
A number of House Republicans also want to require some type of financial-literacy course, likely taught in high schools.
Faith said there is room to work on some aspects of the bill, but watering down the Consumer Sales Practices Act provisions is "a deal-killer."
Padgett, the bill sponsor, agreed.
There doesn't appear to be much middle ground.
Luther Liggett Jr., a lobbyist for the Ohio Mortgage Bankers Association, said in a recent letter to House members: "The vague standards and broad penalities in the Ohio Consumer Sales Practices Act are fatal to a lending environment."
e-mail: [email protected]