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#39680 - 10/30/02 08:38 PM MBA, Detroit, and predatory lending
Bartman Offline
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Bartman
Joined: Oct 2000
Posts: 1,191
Springfield
Don Heikkenen at MBA is asking Michigan bankers to e-mail their state legislators and request state-level preemption of an impending Detroit predatory lending ordinance.

The fear is, if Detroit passes their ordinance, that banks will pull out of mortgage lending in the city. Consider the impact on your organization if you work in multiple markets - are you prepared to potentially handle compliance with a different city ordinance in each city you lend in?

MBA is making it easy for us. From the MBA's main page (at http://www.mibankers.com/index.htm), click on Action Alerts at the bottom left, select predatory lending ordinances, and follow the prompts.
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Opinions are Bartman's, not those of my employer. "A noble spirit embiggens the smallest man."

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#39681 - 11/01/02 02:43 PM Re: MBA, Detroit, and predatory lending
Elaine K. Sheehan Offline
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Elaine  K. Sheehan
Joined: Jul 2002
Posts: 157
Grand Rapids, MI
Bart, do you have a reference for the proposed Detroit ordinance?

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#39682 - 11/04/02 01:14 PM Re: MBA, Detroit, and predatory lending
Bartman Offline
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Bartman
Joined: Oct 2000
Posts: 1,191
Springfield
Sadly, no. In all honesty, I haven't bothered to look because Detroit is pretty far outside my market. Terry Greisinger at the MBA may be able to assist you - 517-485-3600.
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Opinions are Bartman's, not those of my employer. "A noble spirit embiggens the smallest man."

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#39683 - 11/08/02 03:30 PM Re: MBA, Detroit, and predatory lending
E.E.G.B Offline
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E.E.G.B
Joined: Jul 2002
Posts: 6,726
the sandy shore
I have a copy of the proposed ordinance, if anyone needs it. Anyone heard anything further on what is happening?
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I disbelieved what he was saying so hard, I probably created an alternate universe where it wasn't true.

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#39684 - 11/08/02 10:39 PM Re: MBA, Detroit, and predatory lending
NMB Offline
Gold Star
Joined: Jun 2002
Posts: 255
Southeast Michigan
I'd appreciate a copy. My email is nancyb@commbankdearborn.com. Thanks. If you need to fax it, email me directly and I'll give you my fax number.

This is practically in my back yard, but I have been too buried with other isuues to spend time on it.
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#39685 - 11/13/02 03:14 PM Re: MBA, Detroit, and predatory lending
Bartman Offline
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Bartman
Joined: Oct 2000
Posts: 1,191
Springfield
The state Commerce Committee votes this morning on HB6121, which contains a provision preempting local ordinances. MBA recommends a 'yes' vote. We'll see what happens.
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Opinions are Bartman's, not those of my employer. "A noble spirit embiggens the smallest man."

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#39686 - 11/13/02 03:32 PM Re: MBA, Detroit, and predatory lending
Elaine K. Sheehan Offline
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Elaine  K. Sheehan
Joined: Jul 2002
Posts: 157
Grand Rapids, MI
Here is commentary from Howard Lax's most recent newsletter: Every time a new jurisdiction proposes an anti-predatory lending ordinance, the sponsor tries to make the new proposal more "macho" than the proposal adopted in the last jurisdiction. Detroit is next, and its proposal makes Georgia's new Fair Lending Act look like a bill to award the Nobel Peace Prize to predatory lenders. The proposed ordinance prohibits loan "flipping," "packing," balloon payments, negative amortization, "call provisions," loan modification fees, and non-escrow account loans, if the loan is a "threshold loan." The definition of a "threshold loan" includes any loan where the APR "over the life of the loan" is more than 4% above comparable treasury yields, or the "points and fees" are more than 3%. The definition of "points and fees" includes all amounts paid to a broker (directly or indirectly), which would include the YSP. Since treasury yields vary from day to day, and the APR "over the life of the loan" will vary depending on when a loan is prepaid, all loans are potentially "threshold loans" except direct loans (no broker) that are not table funded, that charge no prepaid finance charges, and that vary the interest rate based on one year treasury securities.

The requirements for "threshold loans" include mandatory HUD approved counseling. The borrower can't close until the lender receives a certification of completion of counseling. A new disclosure is required. Lenders will be required to perform background checks on all brokers. The definition of "flipping" is so nebulous that the only loans that surely qualify are no-fee refi's that reduce the interest rate and payment amount without changing any other term. Lenders must provide the note, mortgage and GFE/TILA disclosures for each threshold loan to the City of Detroit Finance Director, and certify that each loan complies with the Ordinance (the FTC will be interested to learn that there is no such thing as financial privacy). The ordinance also re-writes state law so that a violation of the Ordinance is a violation of the Michigan Consumer Protection Act (I did not know that a city could rewrite state law). These are just a few of the highlights (or lowlights) of this 42 page Ordinance.

Since balloon payments are prohibited for threshold loans, most subprime loans will be illegal "predatory loans" if this Ordinance is enacted. Predatory loans cannot be sold, and anyone who buys a predatory loan has to notify the borrower that it is an illegal loan, and make restitution. The assignee of a predatory loan has no holder in due course status, and is liable for all of the "sins" of the lender.

Finally, the Ordinance requires the Finance Director to collect a truckload of new reports from banks if he wants to obtain bids to put money in an interest bearing account at a depository institution. Of course, "predatory lenders" need not apply. A "conspiracy theorist" would find that this provision is an excellent way to direct the City's banking business to a de novo bank that has no lending history.


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#39687 - 12/03/02 03:42 PM Re: MBA, Detroit, and predatory lending
NMB Offline
Gold Star
Joined: Jun 2002
Posts: 255
Southeast Michigan
In case you missed it, the Detroit city council action has been delayed so the original bill can be revised to mitigate the unforeseen negative impact it would have on Detroit borrowers.
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#39688 - 12/16/02 08:27 PM Re: MBA, Detroit, and predatory lending
clm Offline
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clm
Joined: Jul 2002
Posts: 4
Michigan
See Friday's MBA CEO Update. Both Telemarketing and Predatory Lending bills have passed and are awaiting the Governor's signature.

Predatory Lending, which is effective immediately: http://michiganlegislature.org/mileg.asp?page=getObject&objName=2002-HB-6121&userid

Telemarketing: http://michiganlegislature.org/mileg.asp?page=getObject&objName=2001-HB-4042&userid


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#39689 - 12/20/02 01:58 PM Re: MBA, Detroit, and predatory lending
Bartman Offline
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Bartman
Joined: Oct 2000
Posts: 1,191
Springfield
FYI - the Detroit ordinance passed yesterday, 7-1. Here's the Detroit News coverage: http://www.detnews.com/2002/metro/0212/20/d08-41222.htm
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Opinions are Bartman's, not those of my employer. "A noble spirit embiggens the smallest man."

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#39690 - 01/02/03 04:17 PM Re: MBA, Detroit, and predatory lending
Bartman Offline
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Bartman
Joined: Oct 2000
Posts: 1,191
Springfield
Further update: The legislation passed & was signed on 12-23-02, as Michigan PA 660 of 2002. You can find the text here: http://www.michiganlegislature.org/documents/2001-2002/publicact/pdf/2002-PA-0660.pdf

Of particular interest is sections 6 & 7, which require lenders to give a 'borrower's bill of rights' and a 'consumer caution and home ownership counseling notice' at application. Section 4 (2) also prohibits financing of single premium credit insurance. Applicable loans are closed-end, non-purchase first or second liens.

Of greater interest is the immediate effective date. I have two Word documents that cover the notice requirements - send me a private message with your e-mail & I will forward.
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Opinions are Bartman's, not those of my employer. "A noble spirit embiggens the smallest man."

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#39691 - 01/03/03 02:05 PM Re: MBA, Detroit, and predatory lending
Howard Lax Offline
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Howard Lax
Joined: Jan 2002
Posts: 478
Bloomfield Hills, Michigan
The notices were in my last newsletter. A list of HUD approved counselors must be attached to the second notice (a link to the HUD list is also in my last newsletter). VMP and Greatland will not provide the list because they do not want to track HUD's changes to the list. So, we consolidated and condensed the HUD list down to six pages, and we will track the changes in the list for our clients.

Clients are also receiving a document titled "Loan Officer's Ten Commandments" that highlights the prohibitions on lender activities in the new law.

Please also note that the law applies to all loans secured by the borrower's principal residence - including commercial loans. Furthermore, the prohibition on short term balloon loans applies to all persons, and may restict seller refinancing of land contracts.
Last edited by Howard Lax; 01/03/03 02:07 PM.
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#39692 - 01/03/03 02:06 PM Re: MBA, Detroit, and predatory lending
Anonymous
Unregistered

Bart:

This legislation was forwarded to my attention the other day with an interesting analysis, that suggested that Section 5 of the Act "Prohibits ballon payments for loans of less-than five years except for bridge loans. When I read the legislation, my view is that balloon payments are permissible, provided the payment stream disclosed is properly amortized, including the final baloon payment. I don't read into it (balloon financing) as this is a prohibitive practice under this legislation. Is that your opinion?

Also, disclosure of the borrower bill of rights and consumer caution form is immediate. If a lender choses to disclose these forms in all mortgage related transactions, in essence, over-disclosing, whould this be viewed upon by a state regulator as a negative practice? I don't see the harm?

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#39693 - 01/03/03 03:54 PM Re: MBA, Detroit, and predatory lending
Bartman Offline
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Bartman
Joined: Oct 2000
Posts: 1,191
Springfield
Glen - I'm really torn on the balloon issue. Upon first reading, I thought "no balloons of 2, 3, or 4 years", just in trying to make our existing products fit the language. Now I'm not so sure. Let's take an example:

I offer a mortgage refinance amortized over 15 years, with a balloon payment due after 3 years. The payment schedule has 35 payments of $x and 1 balloon payment of $y.

Is this a loan (from the language in the statute) "with a term of less than 5 years"? I think you can argue either side of the issue, and it may hinge on whether the bank has an unconditional guarantee to rewrite the balloon balance into another loan.

I'd suggest this needs to be clarified, and it's one of the issues I hope to discuss at the MBA Compliance Committee meeting on Jan. 22.

As far as disclosing to all, I don't see the harm - provided you can clearly articulate to the examiner that "we realize we only have to provide it in certain circumstances, but we give it to everyone because..." Could be it's just operationally easiest, or could be you feel it's in the interest of good customer service.

You DON'T want to say "the law says we have to give it whenever we take the home as collateral". That demonstrates that your bank doesn't understand the requirements of the statute. (Just my opinion.)

Howard, I hadn't seen that issue of your newsletter. I originally didn't plan to provide the list, but on a closer reading of the law we don't seem to have much choice. Not a very efficient process...
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Opinions are Bartman's, not those of my employer. "A noble spirit embiggens the smallest man."

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#39694 - 01/03/03 05:40 PM Re: MBA, Detroit, and predatory lending
E.E.G.B Offline
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E.E.G.B
Joined: Jul 2002
Posts: 6,726
the sandy shore
My personal question for the Detroit ordinance is on the determination of ability to repay - they reference 38 CFR 36.4337e - what's that??

YIKES on the jail time - that's going to make my lenders sit up and take notice. Georgia redux.
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I disbelieved what he was saying so hard, I probably created an alternate universe where it wasn't true.

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#39695 - 01/03/03 06:16 PM Re: MBA, Detroit, and predatory lending
Anonymous
Unregistered

Bart:

Thanks for the opinion, I agree, the language in the Act is not completely clear. My thoughts were that you could argue the same point relative to the three- year balloon based on a 15 year amortization schedule. Im glad to see that I am not the only one who tends to look at these statues in the context in which they are written.

As for the disclosures, I agree that you don't respond to the examiner in the example that you provided. A little overdisclosure, like providing a final or second TIL, when its not necessary is in my opinion "no harm no foul." It might be operationally efficient to just overdisclose and rely on the customer service aspect? Well see! I have to think on this one for a little bit.

Keep us posted on any Section #5 feedback

Thank's
Glen

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#39696 - 01/03/03 07:05 PM Re: MBA, Detroit, and predatory lending
Bartman Offline
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Bartman
Joined: Oct 2000
Posts: 1,191
Springfield
Ex - I guess I'm not getting too worked up about the Detroit ordinance, for a couple of reasons. First, it's outside my market. Second, and more importantly, the state went to great lengths to preempt local rules with PA 660. Section 14 has 5 subsections that say essentially the same thing: "Any charter, ordinance, resolution...is preempted." And if that wasn't enough for the good commissioners of Detroit, they added Section 15(3) which begins "It is the intent of the legislature to entirely preempt..." I was half expecting a Section 15(4) starting with "Neener, neener, neener"...
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Opinions are Bartman's, not those of my employer. "A noble spirit embiggens the smallest man."

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#39697 - 01/03/03 07:15 PM Re: MBA, Detroit, and predatory lending
E.E.G.B Offline
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E.E.G.B
Joined: Jul 2002
Posts: 6,726
the sandy shore
LOL, no, that's the sort of communications *I* write.....
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#39698 - 01/03/03 07:50 PM Re: MBA, Detroit, and predatory lending
E.E.G.B Offline
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E.E.G.B
Joined: Jul 2002
Posts: 6,726
the sandy shore
OK, now that I've actually read the Michigan statute... I agree with Bart. I think if you make the disclosures a part of your normal application packet, there will be no criticism offered by a regulator. The advantage to doing it that way is you are sure to hit the intended audience, and even those to whom it does not apply can learn something from it.

RE: balloons - I guess the way I read Section 5 is no balloons with 5 year or less terms, just like Georgia and some of the other states have. (Except for the bridge loans.)
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I disbelieved what he was saying so hard, I probably created an alternate universe where it wasn't true.

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#39699 - 01/06/03 07:56 PM Re: MBA, Detroit, and predatory lending
Anonymous
Unregistered

Bart: In an unrelated matter... what is with this house bill number 6121 signed on 12-23-2002. Does this relate to banks or any mortgage lender???

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#39700 - 01/06/03 09:28 PM Re: MBA, Detroit, and predatory lending
Elaine K. Sheehan Offline
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Elaine  K. Sheehan
Joined: Jul 2002
Posts: 157
Grand Rapids, MI
Even though the topic of the thread appears to be the Detroit ordinance, it also includes comments on HB 6121.Any mortgage lender making a mortgage loan as defined in the Consumer Mortgage Protection Act is subject to the Act. Please note that the Act is effective immediately.

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#39701 - 01/06/03 09:36 PM Re: MBA, Detroit, and predatory lending
Bartman Offline
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Bartman
Joined: Oct 2000
Posts: 1,191
Springfield
Elaine is right - and just to clarify, HB 6121 became PA 660 of 2002 when outgoing Gov. Engler signed it on Dec. 23.
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Opinions are Bartman's, not those of my employer. "A noble spirit embiggens the smallest man."

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#39702 - 01/07/03 03:04 AM Re: MBA, Detroit, and predatory lending
Howard Lax Offline
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Howard Lax
Joined: Jan 2002
Posts: 478
Bloomfield Hills, Michigan
The Detroit anti-predatory lending ordinance was vetoed because it was preempted, and the City has better uses for its money than to try to support a preempted ordinance.
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Howard A. Lax Lipson, Neilson, et. al. Bloomfield Hills, MI hlax@lipsonneilson.com

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#39703 - 01/14/03 07:54 PM Re: MBA, Detroit, and predatory lending
Bartman Offline
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Bartman
Joined: Oct 2000
Posts: 1,191
Springfield
A couple of weeks ago I offered up the following example for balloon loans:

In reply to:

I offer a mortgage refinance amortized over 15 years, with a balloon payment due after 3 years. The payment schedule has 35 payments of $x and 1 balloon payment of $y.




This is the exact example used in the 03-01 FICC News, followed by "The loan is in violation of the Act." Granted, this is one attorney's opinion (which I pretty highly value). Whether this solves the outstanding question for your shop is a decision you'll have to make.
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Opinions are Bartman's, not those of my employer. "A noble spirit embiggens the smallest man."

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#39704 - 01/14/03 08:37 PM Re: MBA, Detroit, and predatory lending
Patsy Cline Offline
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Patsy Cline
Joined: Sep 2002
Posts: 1,117
On the road...
Bart - that was my understanding as well. I have some lenders that are not thrilled!
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