Dodd-Frank helps protect against predatory lending, attorney say - Business, Government Legal News from throughout WV

Dodd-Frank helps protect against predatory lending, attorney says

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Although bankers in West Virginia argue regulations imposed under the Dodd-Frank Act affect how they do business, one local attorney said the law helps protect consumers from predatory lending.

Sarah Brown, an attorney with Mountain State Justice in Charleston, said her organization helps clients who were duped into agreeing to bad mortgage loans. She told the House Subcommittee on Financial Institutions and Consumer Credit at an Aug. 20 field hearing in Charleston that regulatory reform helps the consumer.

"Recent regulatory reform is not only necessary to protect West Virginia consumers, but also to level the playing field and enable community financial institutions to compete with national mortgage lenders," Brown said in her testimony.

Mountain State Justice represents hundreds of consumers in active litigation stemming from predatory lending, she said.

"Because our office is only able to represent a fraction of West Virginia homeowners facing foreclosures, changes to the law that alter the practices of the mortgage lending market are essential to protecting consumers," Brown said. "The Dodd-Frank Act specifically prohibits practices that were standard in the mortgage market beginning in the late 1990s."

Brown offered three examples of consumers who were mislead by lending agencies. In one case, a couple's efforts to refinance their home resulted in a negative amortization and possible foreclosure.

Another couple in Sinks Grove also attempted to refinance their home based on a faulty appraisal. In exchange for directing the couple to the high-interest refinance, the broker received a fee in excess of $3,800. The broker failed to refinance the home and the couple is still unable to refinance with another institution because their mortgage loan is in excess of the value of their home.

An elderly woman in rural Kanawha County was the victim of a solicitation to refinance her mobile home. Rather than completing a valuation of the property, the lender used the National Automobile Dealers Association book value for the make and model of her home, then increased the amount by thousands of dollars more than the book value without considering the actual features of the specific home. The lender assumed, Brown said, that mobile homes appreciate in value over time; instead, mobile homes, unlike real property, depreciate over time. Despite a high credit score, the lender approved the victim for a high-interest APR and added hundreds of dollars to her actual income in order to qualify her for the loan. Three years of property insurance premiums were also financed, resulting in lower monthly payments appearing smaller.  However, the principal and interest payment on the refinanced loan is higher than the principal and interest payment on her prior loan.

"The Dodd-Frank Act makes each of these three loans illegal," Brown said. "Under its provisions, the loans would never have been made and would never be sold to a reputable investor. The Consumer Financial Protection Bureau and the bank enforcement agencies would exercise oversight over lenders that attempted to make these loans."

Brown said the majority of these loans are made by large national banks, not the smaller, local banks who are expressing concern over Dodd-Frank. Brown said the act allows those smaller banks to compete with national banks in the mortgage lending market.

"The protections of the Dodd-Frank Act benefit community financial institutions by eliminating incentives for brokers to steer borrowers to national lenders and requiring national mortgage lenders to properly underwrite the loans they originate – just like our community lenders have always done," she said. "By doing so, the Dodd-Frank Act allows community financial institutes to compete for a larger share of the mortgage lending market, which benefits our clients, our communities and our community lending institutions."

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