Just don't count on it surviving this year's General Assembly session in one piece.
The financial industry is pushing legislators to rework the law. Can you blame them? Former Gov. Roy Barnes, the man whose support guaranteed the law's passage, is out of office, and a new party long-ignored by corporate sponsors is in control of the Senate and the governor's mansion. Any fool can see the legislative stars aligning for the industry.
The mortgage bankers and brokers helped grease the wheels for victory last Thursday at a gala complete with a catered spread and open bar. Even Barnes' former Senate floor leader, Sen. Charlie Tanksley, R-Marietta, could be found parroting the industry mantra of "unintended consequences," a clear indication that its message and tactics are working.
The question the General Assembly will have to answer is: How much damage is really being done by the Fair Lending Act? Both sides of the debate will be more than happy to let them know.
It's helpful, though, to first retrace the steps that lead to the coming fight. During the 2002 session, lawmakers overwhelmingly supported a bill that outlaws lending practices such as charging exorbitant and unnecessary fees and balloon payments for loans dubbed "subprime," those given to people with less-than perfect credit.
The legislation also makes lenders who purchase loans liable for laws that were broken by the loan originator -- this is called assignee liability.
The law was created in response to an ever-growing tide of borrowers, often poor and black, forced out of their homes by unscrupulous lenders and brokers.
The U.S. Department of Housing and Urban Development (HUD) tracked a 900 percent increase in high-fee, high-interest loans during the mid-1990s. In 2001, Georgians lost some $151 million in home equity because of predatory lending practices.
But Georgia senators such as Mitch Seabaugh, R-Sharpsburg, say the state's law went too far. "We have individuals who would have easily qualified for a loan on Sept. 30 of last year that cannot" today, Seabaugh says.
William Brennan, the director of Atlanta Legal Aid Society Inc.'s Home Defense Program and one of the country's foremost experts on predatory lending, says Seabaugh's claims are cynical. First, some people shouldn't receive home loans because they don't have the income or the credit. Second, if people are being turned down for loans, bring them in. "Turn those files over to us and let us go over them, and we'll see if they were turned down because of the new law," Brennan says.
But legislators are acting on Seabaugh's contention. There's already a House bill that would exempt government-guaranteed FHA and VA loans from the Fair Lending Act.
"I don't know of anybody who is opposed to those changes," Seabaugh says.
Clearly he should talk to Brennan. Brennan says FHA and VA loans need Fair Lending Act protection. Brokers continue to put borrowers into homes with FHA loans they cannot afford, and there are plenty of examples of fraud within the system.
The foreclosure lists from DeKalb and Fulton counties, which are filled with FHA loans less than 3 years old, suggest Brennan is correct.
But the biggest Fair Lending Act fight will probably be waged over assignee liability. Terry Franzen, who represents the Georgia Mortgage Brokers Association, points to Standard & Poor's decision Thursday to discontinue rating Georgia loans on the secondary market beginning Feb. 1. S&P cited concerns over assignee liability as the reason for its decision. It's unclear what S&P's decision will mean to credit availability in Georgia, but Franzen claims it will have a chilling effect. Moody's and Fitch will likely follow S&P's lead this week.
The answer to S&P's and the industry's concerns is to eliminate assignee liability, Franzen says.
But Brennan and legislators such as Sen. Vincent Fort, D-Atlanta, will be looking to blunt any attempt to change the law. Brennan says removing assignee liability would emasculate the Fair Lending Act. The institutions that purchase the loans on the secondary market, after all, are the ones who foreclose on the bad loans. To stop foreclosures, you have to stop the assignees, he says.
Moreover, it's a victory if Standard & Poor's decides not to rate subprime loans in Georgia.
"That's a condemnation of the subprime mortgage lending business in Georgia," Brennan says. "That implies that there is an understanding that these companies are going to continue to violate the law as it goes into effect."
He argues that the Legislature should give the law time to work and let the market adjust to the new restrictions and work itself out.
"The Georgia Fair Lending Act was so thoroughly vetted ... to say that there are unintended consequences is just ludicrous," Brennan says. But to get an idea of just how important changing the Fair Lending Act is to Georgia's lenders and brokers, all you have to do is look at the financial contributions they make. During 2002, Sen. Don Cheeks, R-Augusta, who heads the Senate's Banking and Financial Institutions Committee, received at least $5,500 from the Georgia Association of Mortgage Brokers, the Mortgage Bankers Association and Citigroup, among others.
Rep. Larry "Butch" Parrish, D-Swainsboro, Cheek's counterpart in the House, meanwhile, took in $5,000 from outfits such as AmeriQuest Capital, one of the nation's largest retail lenders to borrowers with poor credit or low incomes.
Sen. Casey Cagle, R-Gainesville, has them both beat -- when it comes to volume anyway. Cagle, who was one of just two Senate votes against the bill last year, received contributions from at least 11 different financial institutions, including predatory lending superstars American General, Wells Fargo and Household Financial.
The money makes lawmakers more likely to listen to lenders than consumers, most of whom aren't making $1,000 contributions or throwing open-bar parties for their legislators. Parrish for one has already publicly stated his intention to fix problems with the Fair Lending Act.
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