NCPA - National Center for Policy Analysis

Will There be a Federal Subprime Lending Law?

February 14, 2003

In the past four years, more than a dozen cities and states have enacted tough laws against "predatory" subprime lending practices. The subprime mortgage lending market serves home buyers who can't easily get credit through conventional channels, often because of poor credit histories.

Critics of the laws say they make it even more difficult for low-income loan applicants to get mortgages. "Sometimes you can do things in states that look good and feel good, but it will limit people's ability to get housing," says Rep. Bob Ney (R-Ohio), chairman of the House Financial Services subcommittee. He complains that this type of law kills people with kindness and then "puts them out on the street."

  • So Ney has proposed national standards to prevent abuses in the subprime mortgage-lending market.
  • A national standard -- which would be less burdensome for lenders -- would override the state and local laws, which critics say are drying up subprime mortgage lending.
  • The state and municipal laws restrict practices such as high balloon payments on high-interest or high-fee loans.
  • According to the Mortgage Bankers Association of America, 8.58 percent of subprime loans ended in foreclosure in the third quarter of 2002 -- compared with 1.15 percent of all mortgage loans.

The push for federal standards is interesting, in that lenders who usually oppose national action are supporting it as an alternative to the stiff state and local laws. Similarly, the federal alternative is the brainchild of Republicans who normally prefer leaving such matters to the states.

Source: Kelly K. Spors, "Subprime Bill Aims to Mute State Laws," Wall Street Journal, February 14, 2003.

For text (WSJ subscription required),,SB1045173831835038663-search,00.html


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