State seeks to curb predatory lending practices

BOSTON (AP) - The state Division of Banks issued new regulations Friday designed to crack down on predatory lending practices in the home mortgage market.

Mortgage companies accused of predatory lending typically use high rates and charges and base their loans on the equity in a consumer's home rather than the ability to repay, officials said.

The new regulations lower the threshold for annual percentage rates from 10 percent to 8 percent and require lenders to tell those seeking high-cost loans that there may be less expensive loans available.

"We have sent a clear message that predatory lending will not be tolerated in Massachusetts," said state Consumer Affairs Director Jennifer Davis Carey.

Predatory lenders often target people with credit problems, the poor and minorities, officials said.

A predatory loan can include excessive upfront charges, high points, or refinancing a loan multiple times and collecting a new set of fees and points every time.

Points are a percentage of a loan assessed to the borrower. While a traditional loan can have two or three points, a predatory mortgage refinancing company that operated in Massachusetts charged some consumers 30 points, officials said.

Predatory lenders are different from legitimate lenders who make higher risk loans and need to cushion that risk, state Commissioner of Banks Thomas J. Curry said.

"If done correctly, the consumer will benefit by gaining access to credit that may not otherwise have been available," Curry said. "Predatory lending results in the consumer being worst off than they were to begin with."

Other changes in state lending regulations include: Lowering the total points and fees threshold from 8 percent to 5 percent; Prohibiting high cost loans unless the lender reasonably believes the applicant will be able to make scheduled payments based on income, outstanding debts, employment and financial resources other than the borrower's equity in their home.

The regulations, scheduled to go into effect Jan. 22, come after public hearings in Boston, Holyoke, and Worcester.

Community leaders in neighborhoods with large numbers of blacks and minorities have complained that predatory lenders use high interest loans to target residents.

A report released last year by the Association of Community Organizations for Reform Now, or ACORN, found lenders made a disproportionate number of high-cost loans to blacks and low-income borrowers, and in low-income and minority neighborhoods in cities including Boston.

The new state regulations come a month after Boston launched its own anti-predatory lending program, focusing on ways to give residents with poor credit access to mortgages with lower interest rates.