Iowa Attorney General Tom Miller unveiled a package of legislative proposals aimed at predatory mortgage lending earlier this week, including a proposal to abolish stated-income lending in the state as well as an effort to limit the discount points borrowers can pay at closing to obtain a mortgage.
â€œPredatory lending exploits consumers,â€? Miller said. â€œWe are trying to outlaw some questionable practices that cause consumers to pay too much and get trapped in high-cost loans. In the worst cases, consumers can't make their loan payments, and they lose their homes.â€?
â€œThis bill is about conduct - about reining in bad practices we have seen," he said.
"It will help root out the â€˜bad actors' who have harmed consumers and have unfairly gained market share at the expense of honest lenders. It will not ban any products, and it will not restrict consumers' access to credit.â€?
Miller led the nationwide, multi-state settlements with Household Finance and Ameriquest Mortgage Company which are resulting in $800 million in fines as part of separate settlement agreements with each company.
â€œWe learned a lot in those cases about how borrowers can be short-changed,â€? he said. â€œAnd we've learned a lot about how to protect borrowers from predatory mortgage lending.â€?
Included in the AG's proposals is language that seeks to limit so-called "loan flipping," where a broker refinances a borrowers loan without a net benefit to the borrower, as well as limiting advertising claims for loan terms that are not available to the majority of qualified applicants.
The bill also would make it illegal to process stated income loans in the state of Iowa, forcing mortgage lenders to verify the borrower's ability to repay the loan.
Miller also said he is proposing new standards for mortgage bankers and brokers, including certain standards of conduct that would require lenders to properly account for borrower's money and disclose facts that impact a borrower's interest, among other proposed standards.
In addition, Miller said he will seek to limit discount points by barring the imposition of points in loans which include a yield-spread premium and will establish a prosecution fund administered to investigation and prosecution of non-compliant mortgage lenders. The fund would be paid for by borrowers in the form of a surcharge levied by the county recorder during origination.