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Minnesota "Model" Offered for National "Predatory Mortgage" Legislation

July 19, 2007

Minnesota Congressman Keith Ellison Wednesday introduced a bill, modeled after Minnesota law, to end predatory mortgage lending practices. He says it's designed to protect consumers. One provision is that borrowers need to know exactly what they're getting into, and at what price.

"It's just a basic, decent, good lending practice to know whether or not the borrower can afford the loan they're about to get. It also prohibits the practice of steering consumers towards loans that are more expensive. So, in other words, the originator cannot talk somebody into getting a worse loan than they already have."

He notes the bill also limits upfront fees to 5 percent of principle. Ellison adds that while most lenders are "straight-shooters," the proposal addresses the few that take advantage of borrowers.

Twenty percent of all sub-prime loans end in foreclosure, and usually with huge implications.

"This causes havoc for the borrowers. The end up being put out of their home. And also, the bad fortune is not just for the borrower, it's for the whole neighborhood because when you have three and four foreclosed properties on one block, it sends a signal that this is not a very good neighborhood, which decreases property values and pushes the neighborhood down."

The foreclosure rate is much higher in some urban areas in Minnesota and around the country. Ellison points out that most lenders are not "predatory," and expects them to endorse the standards he's proposing to protect their industry and consumers.

Minnesota Attorney General Lori Swanson, who helped shape the state's new regulations, was at the news conference Wednesday to announce the national plan. She emphasizes "predatory" mortgage lenders have an impact well beyond the housing market.

"We have seen abuse after abuse as mortgage lender after lender has affected the stock market. People are going into default or into foreclosure. And so, it's clear that the markets haven't been working very well. And, they haven't been doing a very good job for either families, neighborhoods or for the entire economy."

Jim Wishner/Eric Mack, Public News Service - MN