AARP Pushes for Restrictions on ‘Predatory’ Mortgage Lending

The AARP stepped up its fight against unscrupulous mortgage lenders Tuesday by launching a national campaign against “predatory” lending and pushing for passage in California of a bill that would restrict how home loans are made in the state.

The bill, which has been introduced in the state Senate, and the campaign target lenders that make high-cost loans to borrowers, hoping to eventually seize their homes. Also targeted are lenders that persuade borrowers to repeatedly refinance their loans in order to collect fees.

AARP officials said that although low-income, minority and elderly homeowners are most often at risk, predatory lending practices can affect anyone who borrows money against home equity.

“All homeowners are at risk of losing their most valuable asset--their home--if they fall prey” to unscrupulous lenders, AARP attorney Stuart Cohen said at a news conference at the University of Southern California.

The AARP, formerly known as the American Assn. of Retired Persons, offers free information kits to homeowners considering equity loans and has a toll-free hotline--(800) 209-8085--to learn more about predatory lending.

Several states and both houses of Congress are considering bills aimed at restricting lending practices that are widely viewed as predatory. Many bankers, however, say the laws could unfairly prevent legitimate lenders from providing loans to people with shaky credit.

So-called “subprime” loans have grown rapidly in recent years. Loans to people with poor or nonexistent credit histories grew to 13% of all new mortgages in 1999, up from 5% in 1994, government figures show. Many major banks own subprime lending units, including Citigroup Inc., which was sued last month by the Federal Trade Commission over the lending practices of its subsidiary Associates First Capital Corp.

The California bill would require home lenders to use a specific debt-to-income formula to determine a borrower’s repayment ability before making a loan. The bill wouldn’t ban high-risk loans, but lenders would be forced to provide documentation justifying their decision to make a loan to a borrower whose total debt payments exceed 50% of monthly income.

The bill would ban or limit other practices, such as adding credit insurance to a loan’s financing--a practice known as “packing”--or paying loan proceeds directly to a contractor without proof that home improvements were completed.

The Rev. Leonard Jackson, associate pastor at First African Methodist Episcopal Church, said at the news conference that some of his congregants had complained about home improvement contractors who talked them into expensive loans and then failed to finish the work.

The bill was also endorsed by California Atty. Gen. Bill Lockyer, who denounced predatory lending practices as “utterly intolerable.”