mainesenate.JPGWith sub-prime lenders falling off the map, several state legislatures are taking action to protect consumers against predatory lending. At the forefront, the Maine legislature has drafted a bill that looks to be pretty remarkable.

The bill that curbs predatory loans is still being drafted. Its sponsor, House Speaker Glenn Cummings, D-Portland, said the bill’s major points are the following:

- It changes Maine law to limit the fees that lenders can charge customers.
- It bans the practice of charging penalties when people pay off their high-cost mortgages ahead of schedule and limits them for all loans.
- It protects consumers’ ability to take their lenders to court, and requires all lenders to consider a borrower’s income before making a loan and factor in property taxes and insurance when calculating a consumer’s ability to make loan payments.
- It requires consumers who are taking out high-cost mortgages to receiving credit counseling.
- It gives the Attorney General’s Office the authority to prosecute cases and creates two new enforcement positions in the state Office of Consumer Regulation.

The bill’s most significant component prohibits the practice of “mortgage flipping,” which occurs when brokers encourage borrowers to refinance even though they would have no financial benefit.

These seem to be a well thought out set of actions. By limiting fees that lenders charge and banning pre-payment penalties, all of the junk that fills sub-prime lenders’ pockets begin to be eliminated. Many of these companies get fat on these fees, and its time for the customer to stop getting screwed.

Lenders often throw out pre-payment penalties right before closing, and consumers are left with little or no recourse. If they don’t want their deal to fall apart, they are stuck with the loan, or face finding a new lender who can fund them in a matter of days or hours. It is an ugly game and it needs to be stopped!

The other portion of the bill, which prohibits mortgage flipping, is also extremly important. You wouldn’t believe the amount of money that lenders can make on a refinance. Since most (if not all) lenders make money on commissions, they have incentive to push a refi, even if it does not make financial sense. By banning the practice of mortgage flipping, consumers can rest a little easier.

Overall, this bill looks like a fantastic piece of legislation, and I hope it provides an impetus for other states to do the same. It is nice to see that our elected officials are finally starting to do something to protect consumers, instead of big business. We’ll keep watching to see if the trend continues . . . and if the bill itself gets passed.