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Legislature unveils plan to curb predatory lending

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Associated Press / March 16, 2004

A new legislative plan endorsed by the House speaker and Senate president would crack down on predatory home mortgage lending by limiting late payment fees and requiring borrowers to receive credit counseling before closing on high-cost loans.

The bill, which received preliminary approval from the Legislature's banking committee yesterday, would add new regulations on all home mortgage loans, but focuses primarily on high-cost loans granted to high-risk borrowers with poor credit histories.

The committee cochairman, Senator Andrea F. Nuciforo Jr., a Pittsfield Democrat, said the new regulations would protect low-income borrowers from unscrupulous practices while allowing legitimate lenders to continue serving this high-risk population.

''These are people who . . . are paying more points, paying more fees, and paying higher rates than they really need to be paying," Nuciforo said.

The bill defines a high-cost home mortgage loan as a lending plan with an annual interest rate that is more than 6 percentage points above the Treasury rate for first-lien loans.

Also falling into this category would be loans whose total points and fees exceed 5 percent of the total loan amount or $400.

If approved by the Legislature and signed by the governor, the bill would bar lenders from issuing prepayment fees or penalties on these kinds of loans, charging fees for modification of the loan terms, or imposing mandatory arbitration to settle disputes.

The bill would also require lenders to have a reasonable belief that borrowers have the ability to repay high-cost loans and would require borrowers to receive credit counseling before closing.

House Speaker Thomas M. Finneran, a Boston Democrat, said the bill had been ''artfully drafted in response to some terrible practices."

The leader of the Massachusetts Mortgage Association said the industry opposes the bill because there is no proof it would address the problem of exorbitant loans and could just make it harder for low-income residents to access loans.

''It might have the unintended consequence of limiting access to capital by the very groups it seeks to protect, which is demographically the people who tend to be targeted by predatory lending," said James Doherty, the association's executive director. ''It's never been clear to us that it would actually address the issue it's intended to."

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