Wednesday, September 21, 2005
Geoff Dutton
THE COLUMBUS DISPATCH
Complaints about questionable mortgage lending have spread to suburbs and rural areas, even Amish country, spurring some Ohio politicians to demand stricter oversight of brokers, lenders and appraisers.
The political climate has changed since Ohio tried to rein in mortgage lending three years ago with industry-friendly solutions.
Ohio’s foreclosure rate has risen to the worst in the nation as more people have lost their homes. The problem, once viewed as a scourge of the inner city, has widened.
This fall, the Ohio Supreme Court will hear arguments in a case that could erode the state’s authority over home lending.
If the decision goes their way, Cleveland, Dayton and Toledo are poised to do what the state has resisted — seriously tighten regulation of a lending industry that many local officials view as predatory.
Consumer advocates are hopeful but not confident that stronger safeguards now may be unavoidable, given the circumstances. Several Democrats and Republicans, responding to The Dispatch’s ‘‘Brokered Dreams" series, called for legislative reforms this week. But the Republican leadership remained noncommittal.
An industry armed with lobbyists and hundreds of thousands of dollars in campaign contributions trounced consumer advocates in their last political battle.
‘‘In Ohio, the finance industry is pretty much given a free ride," said Steve Olden, a Cincinnati legal-aid lawyer who specializes in predatory-lending cases. Like other would-be reformers, he is ‘‘pushing against large forces."
Industry officials say they have more than money and clout; they have the better argument.
With home ownership at a historic high, they say, the state has no business meddling in mortgages just because some people get in over their heads with risky loans.
‘‘Do we clamp down on these programs because 10 percent of the people who are beneficiaries of these special programs have experienced problems, when the flip side is (that) 90 percent succeeded?" asked John Van Doorn, a state lobbyist for the British lending giant HSBC Holdings. ‘‘I think any reasonable person would conclude, ‘No.’ "
Pushing for change
In suburban Cleveland, mayors met this summer and railed against state officials for not holding lenders accountable for the creeping blight of foreclosures, widely regarded until recently as a big-city problem.
In Columbus, city officials plan to host a statewide meeting of municipal leaders next month to gather ideas and rally for legislative reforms.
‘‘We need tighter state law," said Columbus Development Director Mark Barbash.
Chip Bromley, a Cleveland consultant who also favors tighter regulations, said the meeting in Cleveland differed noticeably from public hearings that state lawmakers hosted several years ago.
‘‘It wasn’t just black, inner-city council members anymore," Bromley said. ‘‘All of a sudden, suburban mayors were showing up. All of a sudden, the ranch-style homes had 4-foot grass, and there’s no end in sight."
Statewide, foreclosure filings rose faster in suburban and rural counties than in urban ones the past six years, state Supreme Court data show. In Franklin County, foreclosures spiked 71 percent compared with 158 percent in adjacent counties.
Along a rural stretch of Rt. 87 in northeastern Ohio, new billboards warn the Amish rolling by in their horse-drawn buggies to ‘‘be skeptical of door-to-door mortgage salesmen."
Geauga County officials were stunned by calls from Amish farmers who said they had been gouged in refinancing their homes and farms.
‘‘They never ask for help for anything. So we thought, ‘We’ve got to do something,’ " said Anita Stocker of the county Community and Economic Development Department.
The county put lengthy warnings about brokers on three billboards, signs that can be read at a horse’s pace. The yellow-and-red billboards remind people, ‘‘You can be robbed when you are away from home, or you can be robbed over pie and coffee."
Challenging the state
The tension between local and state officials about whether to crack down on lenders will play out in the state Supreme Court.
The justices face a fundamental legal question: Can cities adopt their own lending regulations?
As foreclosures soared, leaving neighborhoods strewn with vacant houses, some cities adopted local laws. Dayton, Cleveland and Toledo passed ordinances in 2001 and 2002, imposing restrictions on lenders and requiring better disclosure of loan costs.
City officials said they had grown frustrated with state inaction. State lawmakers responded by passing a law prohibiting local regulations.
The American Financial Services Association, a lending industry group based in Washington, D.C., sued the cities. Local and appeals courts have made conflicting rulings. The Supreme Court has agreed to hear the Cleveland case.
Neighborhood groups and the Ohio Municipal League have filed briefs in support of Cleveland. Industry groups and Attorney General Jim Petro have urged the court to uphold the existing ban on local regulations.
Many city officials are fed up, said Cleveland Heights Vice Mayor Ken Montlack, chairman of the First Suburbs Consortium, a statewide group of older suburbs that hosted the recent roundtable.
‘‘Essentially, we are asking the state government, to put it bluntly, either to put some teeth into the predatorylending law or get out of the road and allow the regions and municipalities to pursue that vexing challenge," he said.
The lending industry expects a flood of local laws if the court allows them, and warns that companies serving people with marginal credit scores will flee the state if that happens.
When cities began enacting ordinances, ‘‘We immediately became fear-filled," said Dayna Baird, a state lobbyist for the national group that sued Cleveland.
‘‘Without regard to whether these are reasonable ordinances," Van Doorn said, ‘‘the complexity of complying with multiple ordinances would be prohibitive." If just 25 of Ohio’s cities enacted laws, ‘‘we’d be in deep trouble."
Failing to act
With lenders in a panic, the state law prohibiting local regulations was introduced in the House and passed 16 days later, in October 2001.
‘‘It was unbelievable," Bromley said. ‘‘They didn’t want any public input." The Senate passed the bill 3½ months later, voting 21-12.
The swift approval contrasts with the fate of recommendations by the predatory-lending study committee, a group formed under the new law to appease critics. Consumer and industry advocates, despite much disagreement, eventually agreed on a handful of modest reforms two years ago.
‘‘Not a single recommendation in there has been adopted, and there’s a half-dozen in there that everybody agreed to, including the lenders," said Bill Faith, executive director of the Coalition on Homelessness and Housing in Ohio.
Everybody agreed on upgrading state criminal background checks of appraisers and brokers to national checks, and requiring appraisers to be licensed.
‘‘I’ve never worked so hard for so long on a piece of legislation that was really about doing the right thing, and got nothing for it," Faith said. ‘‘All that time for nothing."
Consumer advocates see an impenetrable wall of industry influence blocking the way.
Lenders, homebuilders and realestate agents give tens of thousands of dollars in campaign contributions each year to state candidates and employ full-time lobbyists.
Rep. Chuck Blasdel, who sponsored the bill prohibiting local laws and led the predatory-lending study committee, collected more than $112,000 during the past five years from groups and individuals identifying themselves as being in the realestate, homebuilding or lending industry.
Blasdel said reforms should focus on consumer education, not wrapping the lending industry in more red tape. But the East Liverpool Republican hopes to push through the predatory-lending committee’s unanimous recommendations, which died in committee last session.
‘‘We just ran out of time," he said. ‘‘I don’t see any reason why it will not become law this session."
It’s unfair, Blasdel added, for advocates to say they’ve been shut out by the industry’s political clout.
‘‘They’ve always been at the table with any of the discussions we’ve had."
Paying a price
Some members of the Republican majority favor clamping down on the industry, but they said they took a political beating the last time they spoke out.
Jim McGregor was a first-term House member when the predatorylending debate was heating up. As a former mayor of Gahanna, he had seen too many people caught up in unfavorable loans they couldn’t afford.
He invoked the 1946 Jimmy Stewart movie, It’s a Wonderful Life, as he tried to persuade his House colleagues to protect people from heartless lenders such as the banker in the movie. He suggested a middle ground, tightening the law but not as much as advocates had urged.
‘‘The folks were pretty unhappy with me," McGregor said, chuckling. ‘‘I’m not sure if I’ve ever gotten a contribution from that industry since."
He said he still would like the law to go further to help people avoid the ‘‘slippery traps" of aggressive lending.
Sen. Robert F. Spada spoke on the Senate floor about biblical shepherds and chided his fellow lawmakers for allowing people ‘‘to be fleeced." For every day that passes without reform, he added, ‘‘Somebody’s mother or child . . . is taken advantage of by somebody they really trusted."
Later, the North Royalton Republican lost his seat on the influential Finance Committee, which he viewed as punishment for his remarks.
Doug White, the Ohio Senate president pro tem at the time, is now chief regulator as state Commerce Department director. During the Senate debate, he warned that cracking down on high-cost lenders could force borrowers with bad credit to turn to loan sharks.
‘‘When they foreclose," Sen. Bill M. Harris added, ‘‘it’s a different way than when other people would foreclose."
Critics noted that Harris earlier had been named legislator of the year by the Mortgage Brokers Association. ‘‘I was very proud to be chosen by that organization," he replied before casting his vote.
Faith, the consumer advocate, said the relationship between the industry and lawmakers is shamefully cozy. ‘‘It’s pay-to-play gone berserk."
Nonsense, said White. ‘‘I’ve heard that so many times. There’s nobody that has more influence than (consumer) advocates. I guarantee they had every ear and every door open to them that lobbyists did."
Girding for battle
For now, a patchwork of federal laws and agencies regulates mortgage lending.
Ohio imposed a predatory-lending law in 2002 that mimics federal law, allowing the state to enforce rules for the riskiest loans. But lawmakers have resisted expanding oversight, as has been done in states such as North Carolina and New Mexico.
Even HSBC lobbyist Van Doorn, who fought stricter state oversight three years ago, said, ‘‘There’s no question that the regulations could use some tightening."
He said Ohio’s predatory-lending law was an important step, but, ‘‘We’re light years ahead of where we were" when it passed in 2002. Shortly after, HSBC’s Household International settled federal deceptive-lending charges for $484 million and agreed to a series of reforms.
White also characterized the state’s efforts as a first step and suggested conditional support for stronger laws. ‘‘If the foreclosure rate keeps going up, we will tighten down. We cannot sustain a high foreclosure rate without it being a drag on the economy."
Two years ago, the attorney general proposed giving his office authority to investigate mortgage-lending complaints. Currently, mortgage lending is exempted from the state’s consumer-protection law.
‘‘I think there’s some interest in reexamining this, finally," Petro said. He expects legislation soon. ‘‘Obviously predatory lending has not gone away, and we need to do something else."
For too long, advocates say, the state has waited while appraisers, brokers and lenders have taken advantage of weak oversight — as well as a mortgage-lending process that is inherently complex and ripe for manipulation.
Dan McCarthy, a corporate lobbyist, teamed up with consumer groups during the predatory-lending debate and said he will again.
McCarthy narrowly avoided being overcharged by a broker in a refinancing deal. Then a friend fell behind on mortgage payments a few years ago, not long before lawmakers took up the predatory-lending issue.
‘‘They just got into a loan that kept escalating, and they couldn’t pay," McCarthy said. ‘‘They ended up losing their house."
Between working for his paying corporate clients, McCarthy and his co-workers mobilized to help consumer groups. ‘‘I’m confident the political system will recognize the problem and a solution will happen. It’s just a matter of time."
gdutton@dispatch.com |
