Banks exempt from Indiana's new predatory lending law

Northwestern Financial Review, Apr 15-Apr 30, 2004

Indiana lawmakers ended their election-year session by passing legislation to combat predatory lending. The law, known as House Bill 1229, puts various limitations in place regarding "high cost" loans while specifically exempting loans originated by banks, credit unions, industrial loan and investment companies, or loans that are purchased by Fannie Mae, Freddie Mac, HUD, VA, and the Indiana Housing Finance Authority.

"Indiana has one of the highest rates of homeownership in the nation. When we set out to deal with the issues relating to 'predatory lending,' we knew that it was particularly important that we protect the ability of deserving Indiana consumers to obtain mortgage loans," says Amber Moore, director of governmental relations, Community Bankers Association of Indiana.

Moore said she expects the law to serve as a model for state legislatures around the country.

With time running out during the last week of session, the Indiana House passed the bill 88-1, and Senate voted for it, 47-1.

The Home Loan Protection Act specifically restricts certain lending acts and practices and prohibits others. Additionally, it establishes the homeowner protection unit in the office of the attorney general; provides enforcement procedures for deceptive mortgage acts; establishes a $3 mortgage recording fee; requires the department of commerce to provide home ownership education programs; and makes changes to the definition of a "high cost" home loan.

This accomplishment will set a national precedent for combating these consumer problems that often end in the foreclosure of a home with the successful structuring of legislation that reflects a unifying balance of both lender and consumer support, Moore said. "Without this balanced approach, passing legislation that haphazardly restricts and limits lending practices could have a disastrous effect on the sub-prime lending market, as many states have and are currently experiencing," she said.

"We consider this to be a great victory for the banking industry, the mortgage lending industry, and the consumers of Indiana," says S. Joe DeHaven, President/CEO, Community Bankers Association of Indiana, "Negotiation, determination and good old-fashioned hard work has been the key to our success."