NH Register: DeStefano focuses on predatory lending practices

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NH Register: DeStefano focuses on predatory lending practices

The New Haven Register June 16, 2006

by Mary E. O'Leary

New Haven - Gubernatorial candidate John DeStefano, Jr. Thursday said he would support tougher consumer protections in Connecticut against predatory lending in light of a recent study that Connecticut has one of the weaker laws to prevent abuses.

Despite similar credit ratings, black and Hispanic home buyers pay higher interest rates than whites on sub-prime mortgages, according to a May report by the Center for Responsible Lending.

The report looked at federal data and examined 50,000 sub-prime loans, which usually have higher rates because the borrower has credit or income verification problems.

It found that black and Latinos were more likely to receive higher rate home purchases than similar situated white borrowers, while blacks also paid more to refinance loans, particularly those with prepayment penalties.

Also, of 23 states with laws aimed at preventing predatory mortgage lending, Connecticut has one of the weakest, according to the center, although 27 others have nothing beyond minimum standards set by federal law.

"It's incredible that in the year 2006 such discriminatory practices still exist," said DeStefano, the mayor of New Haven. "Every family should have a fair shot at home ownership. Ending discrimination that hurts working families is an example of something government can and should do, and as governor I will get it done."

DeStefano is running against Stamford Mayor Dannel Malloy for the Democratic Party's endorsement in a primary August 8 with the winner challenging Gov. M. Jodi Rell in November.

Rich Harris, spokesman for Rell's campaign, said "to the extent predatory lending exists in any form, it is inexcusable," but he thought DeStefano was offering "another solution in search of a problem," as far as Connecticut was concerned.

He pointed to the law adopted in 2005 protecting consumers against high fees attached to income tax refund anticipation loans as a plus for the state, something DeStefano agreed with, but which he said doesn't get at the problem of sub-prime loans.

Harris thought the bulk of the state's predatory loan problems were associated with loans made against income tax refunds.

But Attorney General Richard Blumenthal disagreed.

"I can say very emphatically and tragically that predatory and abusive lending practices are alive and well in Connecticut and around the country," Blumenthal said, particularly for first-time homebuyers.

He said he would continue to propose additional protections next year.

Malloy spokesman Christopher Cooney said Malloy was the first to offer an affordable housing plan for the state, which includes the concept of inclusionary zoning. "Dan Malloy has probably the best record in the state in terms of actually providing affordable housing and creating innovative ways of generating affordable housing," he said.

The center's report said Connecticut's law, adopted in 2002, provides moderate protection in the types of mortgages covered and in loan counseling and prepayment penalties. But it doesn't protect against excessive fees and points, or restrict terms of allowable prepayment penalties or against "flipping," where a lender repeatedly refinances an existing home loan with upfront fees.

"Whether or not families receive fairly priced home loans is a major factor in their fundamental financial security. Higher loan costs will both dissuade some potential borrowers from investing in homeownership and increase the risk of foreclosure for those who do," the center's report said.

DeStefano would support no prepayment penalties for home loans of $150,000 or less; no upfront fees for repeated refinancing on existing homes loans; no financing of upfront, single premium insurance; no balloon payments; no loans with negative amortization; and no lending without consideration of consumer's ability to repay.