Desperately Seeking Spines

States prove effective at curtailing abusive mortgages; Congress quick to strike back

There are people who own homes, are veterans of a foreign war, pay taxes and maybe, just maybe, vote who weren't alive the last time Congress took any action regarding banks other than to loosen regulations--and consumer protections. Don't believe me? Ask your mother if auto dealers were allowed to make mortgages back in the day. No, she's gonna tell you, back then there were laws that kept people from taking on debt they couldn't afford and, theoretically, bankrupting businesses and straining commerce and the economy. (Of course there were also rules that said she had to have Dad's permission to have a credit card, but that's another story.)

Where easy credit is concerned, the federal story is a cynical one. The good news, in recent years, has all been at the state level. And much of it has come out of Minnesota, more specifically, out of the staunchly pro-consumer offices of Attorney General Mike Hatch. The AG-turned-gobernatorial-hopeful is best known for his efforts to police the state's health insurance industry, but he's also been remarkably effective as a mortgage industry watchdog.

Hatch hasn't been the only state AG to swing at the shadier bottom-feeders in the ever-growing subprime mortgage, and the industry, which is so profitable mainstream banks are wading in, has been whining to Congress, according to a post Monday on the excellent consumer economics blog The Warren Report.

The Center for Responsible Lending (CRL) is reporting that a new bill in Congress would override and weaken state anti-predatory lending laws that protect homeowners. Congressmen Ney (R-Ohio) and Kanjorski (D-Pennsylvania) have introduced legislation that would roll back state protections for homeowners.

Promoting uniformity among the states is a good reason to introduce federal legislation. Such legislation can ensure that states don't "race to the bottom."

But the Ney-Kanjorski bill pins states to the bottom. Forcing all states to the lowest common denominator smacks of blatant interest group pandering.

Warren Reports followed up today with an entry about a lawsuit against a predatory lender in Texas. The jury in that case awarded a deceived homeowner $11.5 million. Given the rapid increase in the number of people who now owe money to subprime lenders, it's not hard to guess why the industry would go knocking on doors on Capitol Hill.

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