Predatory Lending Woes Discussed

Homeowners packed a hearing room in South-Central Los Angeles Thursday to complain about aggressive lending practices that leave them struggling to pay their monthly mortgages.

The speakers, many of them elderly and members of minority groups, told a Los Angeles City Council committee that they were solicited by lenders to refinance their debt, only to find themselves with payments they could not afford because of exorbitant interest rates, steep prepayment penalties or a dramatic loss of equity in their homes.

“If my loan had been covered by a city ordinance, I don’t think this would have happened,” homeowner Lena Jones told the committee.

The Los Angeles City Council’s Housing and Community Development Committee Thursday held the first of three public hearings to determine whether a municipal law is needed to protect residents from predatory lending practices.

A state law that takes effect in July would curtail many predatory lending practices. Those include originating mortgages when there is no demonstrated ability by the borrower to repay; adding costly and unnecessary insurance to a loan; repeatedly refinancing a second or third mortgage to generate higher fees for the lenders with no benefit for the homeowner; and steep prepayment penalties that lock borrowers into the deals for years.

But consumer activists argue that the state law does not go far enough. The city ordinance, first proposed by City Councilman Mark Ridley-Thomas last summer, would require that counseling be made available to recipients of all high-cost loans; the state law has no such provision.

The ordinance would also curtail the amount of prepayment penalties, whereas the state law limits only the duration of such fines. It would also lower the definition of a “high-cost” loan to encompass more sub-prime borrowers.

The committee plans to hold two more public hearings on the matter elsewhere in the city.

Cities including Oakland, Chicago and Atlanta have passed laws to curtail predatory practices. But mortgage lenders have balked at the patchwork of ordinances, arguing that they create unequal access to credit, in some cases for homeowners who live across the street from one another.