Breaking: The loan sharks are circling.

By Patty Wentz of Portland, Oregon. Patty is the communications director for Our Oregon.

This just in from Salem: the capitol hallways are crawling with lobbyists working to block a bill and amendments that will end the greedy practices of subprime mortgage lenders and help people stay in their homes. And it will be no surprise to you cynics out there that Team Subprime Lender is the same as Team Payday Loan Shops. (Do these predatory lenders get a bulk discount on lobbyists or something?)

Senate Bill 965 is the legislation that has the sharks circling. The bill has a hearing today, which started at 1:00 pm, before the House Consumer Protection committee. That's bad news for the subprime lenders because the more people talk about these loans, the worse they look.

To watch the hearing, go to the Oregon Channel and click on "Hearing Room E".

In Oregon, hundreds of thousands of people have been affected by the crisis in sub-prime lending. From 2001 through 2005, the subprime market in our state has grown 116 percent and the predicted foreclosure rate for people who took out subprime loans in 2006 is nearly 20 percent. Sadly, Oregon has some of the most lax protections against predatory subprime lending in the country.

Bye bye dream house – hello foreclosure nightmare. The foreclosure rate and home loss for subprime borrowers is nearly triple that of traditional borrowers. In Oregon the foreclosure rate predicted for subprime loans made in 2006 is an astonishing 19.6% and that doesn't tell the whole story. Oregon's strong housing market has meant that an unknown number of families have been forced to sell their homes to escape the stranglehold of a subprime mortgage.

One of the most insidious practices of the subprime lenders is to include steep prepayment penalties to create a permanent trap. Also common is the practice of "loan flipping," which is when lenders aggressively market refinances to people who have even the teensiest bit of equity built up…and of course with the refinance, the equity is stripped away in new fees, closing costs and points.

That's why today Sen. Margaret Carter and consumer advocates will be testifying in favor of Senate Bill 965, which requires that lenders at least look at the borrower's ability to repay the mortgage. Carter and team also favor amendments to lower pre-payment penalties to a fair amount and prohibit loan flipping or refinancing that provides no financial benefit to the borrower. These are simple, basic protections that will keep people in their homes.

Who could disagree with that?

You guessed it. The subprime lenders are running a misinformation campaign against the bill and are making their employees call lawmakers to oppose Senate Bill 965. Your representatives need to hear your voice. Contact them here. Urge them to support Senate Bill 965 and its amendments.

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    The radio spots are up and running. I have heard them on KPAM during the Bob Miller show on weekday mornings (I can't bear to listen to KPAM at most other times of day). Something about how this bill prevents locally owned mom-and-pop banks from making small installment loans to the most deserving borrowers. GMAFB.

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    locally owned mom-and-pop banks

    WTF? Such a thing exists?!

  • Grant Schott (unverified)

    Interesting article. I hadn't heard of the bill, but will contact my legislators. Patty, would you be willing to let us know what lobbyists are working against this bill? Let me guess- Mark Nelson and the Campbells are among them.

  • Levon (unverified)

    Opponents of the bill will no doubt make these arguments:

    1) These risky products permit those whom otherwise couldn't afford a home the opportunity to purchase one. 2) Please explain how to draw the line between permitting people to take a risk, and prohibiting particular loan instruments.

    I would appreciate hearing from advocates the specific list of loan instruments/practices they would prohibit and/or regulate further and how.

  • brianbews (unverified)

    I'm confused about what we are protecting consumers from? For example, no loan, sub-prime or otherwise requires a prepayment penalty. It is an option people can choose to lower their interest rate in whatever credit tier they fit whether it is subprime or wonderful. Personally I don't like them, but I don't want my choices taken away. I've read through the talking points and the benefits/risks of this legislation, and I honestly can't see how this bill is protecting anyone except the nationally chartered banks who are exempt from it and can still offer whatever loans they want. I think this is an example of cutting off your nose to spite your face. This just sounds like a really ambiguous "we'll protect you" from the government that is loaded with feel good phrases that are hard to define. It reminds me of big brother's wiretaps.

  • pdxnag (unverified)

    18 USC 1014

    "Whoever knowingly makes any false statement or report, or willfully overvalues any land, property or security, for the purpose of influencing in any way [. . .]"

    Would anyone care to examine the appraisal price of property and dare to isolate out the impact of interest rate and lending tweaks from such appraisal?

    The natural equilibrium price for a home is still pegged to the wages of folks and is tied to the individual choice between renting and buying. The INVESTMENT value of a home is closest to the natural equilibrium when the appraiser uses a rent-justified income approach or capitalization rate that measures the period of time it takes for a buyer to get their investment back from the rents and/or dividends from the investment. In housing . . . in roughly ten years.

    Would you care to measure the present disequilibrium between the current prices and the rationally-justifiable prices?

    The subprime inquiry is the fringe of the fringe of the bigger picture and that of valuation of the "collateral" held by insurance companies and pension funds and many, many other folks that have a prime imperative to display the apparent soundness (in the face of grotesque market disequilibrium) of their claim that real estate investment is somehow inherently non-risky.

    Even a well meaning and learned professional can't think beyond his little myopic vision – See Todd Zywicki's notes to the fed on the matter of subprime.

    The Federal Reserve chairman cannot dare to utter the most rational of ALL potential arguments that a lower priced home is MORE AFFORDABLE.

    A vigorous public interest advocate, as opposed to the mortgagee/real-owner class, would demand that the buyers of overpriced homes have a private cause of action against the seller to whom the lent money was delivered (or even to any prior Purchase Money mortgagee that was paid off in a refinance). This would force both the sellers and the appraisers to examine their own self-interest in avoiding potential future liability to not Trump up the price so as to either abscond with the illgotten cash proceeds or to get their "professional" cut by knowingly decieving the buyer.

    Suppose that the State Treasurer was demanded by the legislature to conduct a mere "STUDY" to look at ALL residential property and value it at the price/value it would have under a presumption that every last person was a renter and the owner was some distant absentee landlord. This would reveal first the imbalance or disequilibrium that exists in the price level and second this could help illuminate and explain why when interest rates go down that this can lead directly to stable or even increased interest payment collections by the real-owner class, mortgagees. Lending, provided that prices sky-rocket, is more profitable than actually directly owning the property and renting it out. Yet . . . the remedy of putting lid on overpricing of the property, when it is coupled with the lending, would interfere with the whole lending/banking industry. You, see . . . high prices we are told represent WEALTH when in reality the high price just maximizes the lending opportunities and leads to the maximization of collection of interest payments.

    For those folks that need anti-Bush motivation to get fired up . . . just ask why it is that Bush pushes "ownership society" crap by favoring what I instead call the new "glorified renter."

    If you really want to rock the boat – not to oppose capitalism but to support free market capitalism and allocation of the RISK associated with investment to the party that benefits from the real-ownership (mortgagee interests in collecting interest) you would:

    1) expand the prohibition on deficiency judgments beyond just "purchase money" mortgages so as to include refinancing transactions – which are also tied too to professional appraisals.

    "[ORS] 88.070 Judgment foreclosing mortgage on real property. When a judgment is given for the foreclosure of any mortgage given to secure payment of the balance of the purchase price of real property, the judgment shall provide for the sale of the real property covered by such mortgage for the satisfaction of the judgment given therein, but the mortgagee shall not be entitled to a deficiency judgment on account of the mortgage or note or obligation secured by the same. [Amended by 2003 c.576 §349]" Edit to make the text above subsection one. Add a subsection two that makes a refinance that is used to pay off a purchase money mortgage that is subject to the new subsection one shall be treated as a purchase money mortgage for purposes of prohibiting a deficiency judgment.

    2) recognize that the real value of property must be determined independent of lender contingencies such that it reflects a rental justified price. Any cash received by a seller that is in excess of such investment based appraisal should be subject to recovery by the buyer in the event that the lender and buyer have any sort of dispute. The principal that this would validate is that it is intended to restore the parties to where they had been prior to the transaction if the transaction is declared void. Allowing the seller to get away clean is identical to allowing an early participant in a classic pyramid scheme to get away clean too. I don't like pyramid schemes. Even those, like with the residential market, that have official state sanction. I want recourse against the "professional" appraiser, personally.

    If Ms. Carter would give higher priority to "stable community" over that of illusionary wealth creation by way of debt induced price hyperinflation then I might be able to offer guidance. Otherwise I'll have to scratch my head in puzzlement at why folks that should know better engage in self-destructive community-destructive behavior.


  • Michell (unverified)

    We now live in a society where we a given the opportunity to ruin our credit before we even grasp its importance, especially to buy a home. There are a lot of people out there that can not buy a home because of their credit, even though they have jobs and work hard. Consequently, we have seen a rise in sub-prime loan products that provide financing for people with distressed credit.

    Rather than go after the sub-prime lenders, shouldn't we be looking at the whole culture of marketing credit to everybody? How much of your mail is pre-approval notices from credit cards? These things make it too easy for people to live beyond their means and end up in debt.

    I say these lenders are scapegoated. They provide credit for people that would otherwise never qualify to buy a home. The hype around the miserable few that fell behind on their bills is fueling this push. This legislation will not solve the credit crisis at all. It will cut off deserving people from home ownership, and all the junk mail and spam pushing people to live beyond their means will keep piling on.

  • Banders (unverified)

    This bill is just a knee jerk reaction to the subrime crisis the news media has played up lately.

    If you look closly at this bill, all it will do is create more of a headache and make ANY sort of mortgage harder to come by in Oregon, subrime or not! It lumps Prime loans into this category also.

    Time and money better spent on disclosures that are easly understood and home buyer education would do a lot more good for the Oregon Homeowner then this bill ever will!

  • evelyn (unverified)

    I as a professional and ethical Mortgage Broker DO NOT appreciate being referred to as a LOAN SHARK. I'll be suprised if you don't hear from some attorney's due to your negligent and uninformed atrticle.

    Please think of the impact Senate Bill 965 will have on Oregon's economy if it passes. I have been a Mortgage for 10 years now. I have never had a fraudulent loan once in my entire career. I cannot tell you how determined I am to provide my clients with home loan education. Teaching my borrowers the advantages and disadvantages between loans is something I take seriously. I take pride in the job I do and treat our community with respect and honesty. It's unfortunate that a few bad seeds are posing an impact on the respectable business in our community. I have been audited by the state and passed with flying colors. If this bill passes I will no longer have a job nor will the families that I employ. Please remember that there are hard working business in our state that take pride in their ethical business practices.

  • Logan Mitchell (unverified)

    As a Progressive AND a mortgage professional, I am truly dismayed by the provisions put forth in senate bill 965. It is poorly written and I don’t believe that people who operate outside of this industry truly understand the implications of its passing. True, there are predatory lenders out there, however they make up a small fraction (less than 1%) than that of other lenders doing honest business. Many of the product types under attack here have a purpose for certain individuals out there based on credit rating, financial situation and investment confidence.

    In a free market, people should be responsible for their OWN actions and educate themselves to the risk and benefits of various programs out there - you cannot hold someone accountable for another persons poor choices. The passing of this bill would remove a huge chunk of the market from being able to qualify. Combine that with an overall decline in home sales, poor employment rates and a poor economy and you will see a crash in the housing market like none other have ever seen. That will take Oregon’s property values with it as well as its economy.

    As a homeowner, it frightens me to think of what would happen to my investment if this were to go ahead as intended. I urge you to educate yourself and your colleagues on this issue prior to making any changes. Predatory lenders should without a doubt be punished for their actions, however you cannot place the responsibility of other people's poor financial management on the mortgage industry. People make choices. I have seen people be so vain that they would rather keep their “toys” (big screen TV, boats, cars, etc.) rather than their house - are these the people you seek to protect? Please don’t let the actions of a few irresponsible people endanger our jobs, our way of life, and our homes here in Oregon.

    One final point, the people who are fighting this bill are in NO WAY affiliated with people trying to stop payday loan regulation. The person who posted this thread should be ashamed for posting such blatently false information. I have no love out there for predatory lending practices, however I work with an extraodinary group of people and they are hardly "predators". I challenge the poster of this thread to post some form of proof to her claims. As a liberal and a prgressive, it ills me to see others who claim to have the same ideals as myself post false and misleading information to fufill an agenda. This makes you no better than the very sharks you claim to be protecting us from.

  • Dumb dumb broker (unverified)


    i can only speak for myself, but you are very ignorant. You read a small section of the entire bill and blasted it as "protection" to Oregonians. It is obvious your IQ level is that of a petrified turd. Did you even read the rest of the bill and its impact on small brokers who don't even due subprime lending or how about all that power it gives to the division (DCBS) to enfore and underwrite and also sanction those they see fit? Wow, that helps everyone doesn't it? Why don't you have someone who is more intelligent do your reading for you.

  • Don Smith (unverified)

    I echo the sentiments of my colleagues above, but offer a new perspective. I am a mortgage banker, not a broker, but what this bill will do is KILL the mortgage brokerage industry. It appears that this bill in its present form was drafted and promoted by at least one of the big mortgage banks in an effort to speed consolidation in our industry. It is cloaked as consumer protection, but its goal of "saving" our market from price drops is the opposite of what will actually happen.

    Once consumers have the ability to sue brokers individually for "selling" the consumer a product "they couldn't afford", the dam will break with plaintiff's attorneys looking for causes of action. The ads on the radio and internet will switch from "Are you paying too much for your mortgage? Refinance now with a low-interest rate..." to "Are you paying too much for your mortgage? Sue your loan officer!"

    Look to the insurance industry for parallels. Oregon has one of the worst regulatory regimes in the country for insurance. Our premiums are higher than every other state except NY and the product choice and vendor choice is likewise smaller.

    The same will happen if 965 passes as-is.

    Please think for yourselves. Like Evelyn, I take my job seriously. I (over)educate my borrowers to the point they say, just shut up already. I have only done three subprime loans in my career and they were for very specific reasons. I won't be harmed much if 965 passes. In fact, wiht the consolidation and the fact that I work for a mortgage bank, I may be helped. But either way, the consumer LOSES with this bill and big mortgage banks and plaintiff's attorneys score big time.

  • Jeff (unverified)

    Something to think about - Oregon has a problem in sustaining job growth not home prices. Bill 965 could lead to thousands of job losses including mortgage brokers, title officers, realtors, appraisers, architects, engineers....and the guy swinging a hammer. I have read some of the respondents from the OurOregon website and it is interesting how some proponents of bill 965 believe that "now I can afford to buy a house." From this statement it is obvious that this hastily written and horrible bill will lead to the old increase in supply and lower demand theory and home prices will greatly suffer. Considering that Portland already has the lowest average/median home prices on the west coast makes one question the motivation behind this bill. Is it redistribution or wealth, a hatred for capitalism and free market behavior OR is it the big banks and credit unions, that are EXEMPT even though their loan officers don't require the same training or licensing as mortgage brokers, are trying to grab market share. The argument that consumers are suffering doesn't hold water and the RACE CARD is a joke in Oregon. This isn't Georgia folks. By the way Georgia passed a bunch of these laws in 2002 and repealed them within a couple of years because of the fiscal damage. I believe in ethical lending practices. So write a decent bill that addresses specific issues like prepay penalties but don't play word games and hide the fact that you are punishing good borrowers.

  • Michael (unverified)

    I am a mortgage broker, an honest mortage broker. This bill is not aimed to protect the consumer and will not do so. If you read what this bill does, it's purpose is to eliminate the mortgage broker, which it will do by causing insurance and bonds to be unattainable, and make the BANKS to only place someone can get a loan. I will be out of a job along with 14,000 other mortgage brokers in the State. For those of you that want a mortgage and don't want to go to or can't qualify with your local Wells Fargo or Washington Mutual, good luck. This will destroy Oregon's economy.

    <h2>The "Pay Option ARMS" have been abused by predatory lenders who have given all of us a bad name, bud the fact is, predatory lenders are a very small percentage of the 14,000 mortgage brokers in the State. The Pay Option ARM is a good product for investors, not somebody trying to own their first home and qualify. Those of us with the common sense and who actually care about what we do and the people we help obtain "The American Dream" are going to be jobless if this bill passes. I have not made a quick buck at my clients expenses. My Wife and I just had our first child, a son. We are just like the people I help and hope that this bill will be defeated so that those of us hard working, honest professionals can stay employed and support our families. There are better ways to regulate the mortgage industry.</h2>
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