Officials vow crackdown on predatory lending

From left: Credit Union CEO Ben Hayward, state financial institution regulations Director William Verant, Lt. Gov. Diane Denish, United South Broadway's Diana Dorn-Jones and Karen Meyers of the AG's office talk strategy. (© 2008 Photo by Denise Tessier)

ALBUQUERQUE -- Talk about prescient timing.

On the day the federal takeover of the nation's two largest mortgage finance companies was announced, Lt. Gov. Diane Denish had already scheduled a meeting to announce her own "comprehensive and strategic" legislative plan to correct flaws and gaps in state laws she said have contributed to the housing crisis and loss of home ownership at the state level.

This calendar year, more than 9.000 homes will have been lost to foreclosure in New Mexico neighborhoods, said Diana Dorn-Jones, executive director of the United South Broadway Corporation, where Denish made the announcement. United South Broadway offers foreclosure counseling to families under threat of losing their homes and offers mortgage services that help eliminate barriers to credit, capital and home ownership for low-income New Mexicans.

Dorn-Jones added that when a house sits empty, property values of the entire neighborhood go down. More than 151,000 homes will decline in value in New Mexico because of foreclosures in the neighborhood, for a projected decrease in the tax base of $513 million -- or $3,389 per household, she told the New Mexico Independent.

"Everyone loses when people lose their home in New Mexico," Dorn-Jones said.

Ben Hayward, president and CEO of First Financial Credit Union of New Mexico, concurred, saying "as of Sept. 1, your property values dropped another half-percent."

He stressed that any legislation to crack down on predatory lending and better regulate mortgage institutions "will not affect legitimate lenders" and he predicted opposition to Denish's proposals. Lobbyists are going to "come out with a vengeance to stop this (legislation) from happening."

But, "Enough is enough," Hayward said. "From a business perspective I've seen two much wealth leave New Mexico," and he added, "We have the power to stop it."

Karen Meyers, director of the Consumer Protection Division in Attorney General Gary King's office, said, "No one should loan you any money unless they determine you have the ability to pay."

"For too long, we have taken a piecemeal approach to predatory lending," Denish said. With the help of "legislative champions" like Rep. Al Park, D-Albuquerque, and Sen. Bernadette Sanchez, D-Albuquerque, she said she would like to see a comprehensive package in the 60-day upcoming January session that would:

1) Establish background check requirements and licensing for mortgage originators. "Right now, it is possible for any person to get into the business, regardless of their background or past criminal records," Denish said.

2) Revisit the Home Loan Protection Act (HLPA) to ensure that loans remain available for low-income families in New Mexico while preventing lenders from making loans where payments exceed 50 percent of a borrower's income.

3) Create restrictions for title loans. Currently, she said, title loans "are almost completely unregulated in New Mexico" and people are losing their cars, their assets and ... sometimes ... the ability to provide for their families. She says she has heard of instances where individuals, being kept in debt as long as possible, have paid so many times to retrieve a repossessed vehicle they have eventually paid "three times the value of the car." Hayward gave NMI this assessment of title loans: "Talk about a dog with fleas."

4) Crack down on payday lending by tracking installment loans, restricting interest rates and limiting the number of times a borrower can flip a loan. Denish said in response to payday loan reform enacted in 2007, "Some lenders have been not ethical because they have renamed their products as special 'installment loans'." These loans "continue the cycle of debt by charging outrageous interest rates," she said.

5) Address tax anticipation loans, where borrowers often pay up to 45 percent of their expected tax refund in fees, which could be exacerbated by high interest rates on the advance loan if for some reason the refund is less than expected. First Financial's Hayward told the New Mexico Independent he knows of a New Mexico lender that not only charged a consumer a tax preparation fee and took 20 percent of the anticipated refund, but gave the consumer the "advance cash" in the form of a prepaid debit card that was only good in certain retail outlets.

6) Strengthen the Unfair Practices Act. Denish said some lenders follow the letter of the law "but not the spirit of the law" by withholding information borrowers need to make sound financial decisions.

Such was the case for United South Broadway client Mary Harrell Scales, who has had a steady, good-paying job for almost 14 years in Albuquerque and told NMI that she informed her lender upfront exactly what she could afford in mortgage payments. But Dorn-Jones said the lender failed to factor in the true cost of taxes and insurance, which raised her mortgage by an additional $300 a month. Scales' first lender was Matrix Financial Service Corp., according to Scales' United South Broadway file.

After dealing with two more lenders and she was faced with foreclosure, Scales sought the help of United South Broadway. She became pro-active, Dorn-Jones said, and found a buyer for her house at a price that would satisfy Scales' debt and leave her with about $1,500, enough to get her into rental housing. "We set up a closing with the lender," Dorn-Jones said, but the lender -- who with FHA backing conceivably could walk away and still get the money Scales owed -- failed to show up.

"By them not showing, the deal fell through and Mary was left with nothing," Dorn-Jones said. The house sits in a nice area of Albuquerque but is being vandalized and the neighbors are concerned, Scales said. "I'm still getting calls (from potential buyers) for the house," Scales told NMI.

In some parts of the country, neighbors are resorting to mowing the lawn and keeping an eye on foreclosed properties just to keep their own homes from declining in value, Dorn-Jones told NMI.

(The company that didn't show ,she said, is Dovenmuehle Mortgage Inc., an out-of-state firm.)

"Too many have been steered into these abusive products (high-cost sub-prime mortgages) they could not pay," she said, and most of those targeted for such schemes have been people of color.

"One of the most important things government can do for us is look out for consumer protections," Dorn-Jones said. She urged anyone who needs assistance in keeping their home or has a predatory lending issue to contact the Department of Housing and Urban Development, which will direct them to the United South Broadway Corporation.

 

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