Reworked Ohio lending fraud bill raises objections

COLUMBUS - It seems no one's happy with a bill to crack down on fraudulent mortgage practices, a measure that's been delayed as the House and Senate work out differences.

Consumer advocates who praised the Senate version say the House added loopholes that would allow brokers to keep swindling borrowers by shoving complicated paperwork at them during the loan closing.

Large banks say the House did nothing to address their worry that they will be targeted by lawsuits — even though the bill specifically exempts them.

The Senate version applied Ohio's existing consumer protection law to mortgages for the first time. The law bans fraudulent and "unconscionable" sales practices, and allows the attorney general to seek court orders stopping such acts and victims to sue to get their money back.

The House applied the same remedies but replaced the sweeping definition with 20 specific banned practices, a list that may be expanded.

LOOPHOLE LAMENT

"Most of the prohibitions in the bill have loopholes in them," said Bill Faith, executive director of the Coalition on Homelessness and Housing in Ohio. "It actually identifies the way lenders can get around them."

For example, the House version says lenders can't raise a mortgage interest rate simply because a borrower missed a payment, but allows them to do so for "rates of interest for judgments." Several attorneys told the coalition that means the bank can raise the home loan rate if the borrower defaults on a credit card payment, even one owned by another bank, Faith said.

"That’s unheard of," he said.

The bill also bans bribing or forcing licensed appraisers to falsely inflate a home appraisal — a practice that makes money for the lender while leaving the buyer with more debt than home value. But it then outlines ways for the broker or lender to try to change the appraisal amount.

Sen. Joy Padgett, who has worked several years on the Senate version, said she shares Faith'’s concerns.

The bill allows too many otherwise prohibited practices if the paperwork signed in closing a loan discloses what's being done,
she said. For many of the low-income and older borrowers who testifi ed about losing their homes, the fraudulent practices were in their contract but in incomprehensible language, said Padgett, a Coshocton Republican.

The Legislature is on a break until after the May 2 primary

CONCERNS CALLED 'BOGUS'

Padgett dismissed as "bogus" concerns by the Ohio Mortgage Bankers Association and its national group, which represent federally regulated lenders.

Applying consumer protections has worked in 48 other states, she said.

Institutions that specialize in refinancing are likely to pull out of Ohio, leaving homeowners fewer choices and higher rates if they try to get out of a bad loan, said Karen Stypinski, president of the Ohio group and vice president of the newly forming Insight Bank,
of Columbus.

Every state's consumer law is different, Stypinski added, leaving lenders with a patchwork of regulations when there should be one standard federal predatory lending law.

The association believes bill backers are blaming Ohio's high home foreclosure rates too much on fraud.

"The majority of these people going into foreclosure mainly is because of loss of job," Stypinski said.