Governor Doyle to Sign Legislation Protecting Wisconsinites’ Homes from Predatory Lenders MILWAUKEE — In response to a disturbing increase in unscrupulous home lending practices and an alarming increase in foreclosures due to these loans, on Thursday morning, April 15, Governor Jim Doyle will sign into law an act designed to protect unwary homeowners from predatory lenders. Predatory loans are designed to strip the homeowner of the equity they have in their home, and generate huge fees for the lender, regardless of the borrower’s ability to pay back the loan. The law Governor Doyle will sign, called the Homeowner Protection Act, limits the predatory practices on these high-cost loans, and gives the Department of Financial Institutions the authority to investigate and penalize lenders who violate the law. The dishonest lenders targeted by the new law take advantage of unsuspecting borrowers by selling high-cost, subprime home loan products that are unsuitable for the borrower, which often results in a forced sale, or worse, loss of the home due to foreclosure. Members of the Strategies to Overcome Predatory Practices (STOPP) initiative worked hard with lenders and advocates from around the state, to make homeowner protections in the law as strong as possible. STOPP, a program of the Metropolitan Milwaukee Fair Housing Council (MMFHC), utilizes a coalition of community-based organizations, housing industry representatives, government agencies and elected officials to identify and eliminate predatory lending practices throughout Milwaukee County. The STOPP Legislative Workgroup grew from concern on the part of its chair, Milwaukee County Treasurer Dorothy Dean. Ms. Dean became aware of the problem when she began getting phone calls from older men and women who couldn’t pay their property taxes because they had unwittingly become victims of predatory loans. “I heard so many of these stories that I got angry. I knew that I had to do something about it,” said Dean. “STOPP has worked very hard to enact legislation that addresses the worst of the abuses. This legislation is a good first step in regulating the lenders who prey on these people.” “The Fair Housing Council and its partners are engaged in a wide-ranging effort to identify and eliminate unfair and discriminatory lending practices,” explained William R. Tisdale, MMFHC President and CEO. “We have seen predatory loans turn the dream of homeownership into a nightmare for unsuspecting borrowers,” he added. “Our research shows that with promises of debt consolidation, easy payment plans, and quick, easy applications and approvals, predatory lenders prey on unsophisticated consumers. But what the victims of these predatory loans find, is that in the end, the cost of those fast approvals can be enormous. ” MMFHC operates the free STOPP hotline, which borrowers or potential borrowers can call to get advice and help. The hotline number is (414) 278-9190. # # # What is the Home Owner Protection Act, and why do we need a law to protect homeowners and homebuyers? The Home Owner Protection Act will help to protect Wisconsin homeowners from dishonest lenders who target homeowners and prospective homebuyers with high-cost home-secured loans that charge excessive fees and strip away equity. It limits certain predatory practices with respect to these high-cost loans, and gives the Department of Financial Institutions the authority to investigate and penalize lenders who violate the law. How does the Act work? The legislation identifies certain acts and practices that are inherently abusive and typically connected with high-cost loans. These acts and practices add to the cost of the loan, and put the borrower at greater risk of default. This Act prohibits or limits these acts and practices with regard to high-cost loans. A high-cost home loan is defined in AB 792 as a home mortgage loan that exceeds either: 1) The interest rate threshold established by federal law (8 points above the yield on Treasury bills with comparable term for first liens; 10 points above for subordinate liens); or 2) Points and fees that exceed 6 percent of the total loan amount. Under the Act, the following acts and practices are prohibited for high-cost loans: • Balloon payments; • Debt acceleration at the sole discretion of the creditor; • Negative amortization; • Increased interest rate after default; • Advance payments made from loan proceeds; • Lending without due regard to repayment ability; • Loan flipping; • Direct proceeds payments to home improvement contractors; • Financing of single premium credit insurance products; • Refinancing a below-market rate loan into a high-cost loan without written approval from the current loan holder; • Making false or misleading statements; • Recommendation of default; • Excessive prepayment penalties and prepayment penalty periods extending beyond three years. In addition, any lender offering a high-cost loan to a borrower must provide a written disclosure to the borrower concerning the risks involved in taking out such a high-cost loan at least three days before the loan is made.