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									Gongwers Report, 3/23/06


        A variety of groups with an interest in legislative deliberations on mortgage
lending issues continued to make their cases before a House panel Thursday in advance
of a potential committee vote next week.

        The House Financial Institutions, Real Estate & Securities Committee, meeting in
a third consecutive marathon session, heard from more than a dozen witnesses whose
positions fall on all sides of the issue.

        Backing the measure (SB 185) were officials representing the Attorney General’s
office, the Coalition on Homelessness & Housing in Ohio and local governments.
Opposing arguments came mostly from industry representatives.

        As the day’s hearing wound down, and as parties prepared to enter a closed-door
working group, one of the bill’s key advocates, COHHIO Executive Director Bill Faith,
told the panel he would be supportive of slowing down the process to make sure the
legislature gets the bill in proper form.

       While all witnesses generally agreed that more should be done to minimize the
occurrence of “predatory” practices, the parties, however, disagreed about how that
should be done.

       Assistant Attorney General Bob Hart urged the panel to adopt the Senate-passed
version, dismissing arguments that the Consumer Sales Practices Act can’t be properly
applied to certain mortgage-related transactions.

        He said Ohio courts have been “very clear” in determining what types of acts are
considered deceptive and therefore prohibited under the law. Mr. Hart also said
borrowers could only claim CSPA-related violations for events that unfold at the actual
point of sale, noting that subsequent job loss or family breakups would not be applicable.
The witness also urged the panel to reject efforts to include a “right-to-cure” in the bill.

        Responding to questions, Mr. Hart said the office has been active in enforcing
suspected civil violations, but noted that local prosecutors have the first chance to pursue
criminal allegations. He said, however, that the office’s ability to investigate mortgage
brokers is virtually “meaningless,” because it cannot subpoena witnesses for the

       Jim Nabors, president of the National Association of Mortgage Brokers, said his
industry supports tough standards on participants, but said the bill contains several
problems that would bring about negative results.

       He focused on language imposing a fiduciary duty on lenders – a provision he
said was “fraught with problems.” Mr. Nabors said the language puts lenders in an
impossible situation where they are charged with doing what’s best for different parties.
“How can loan officers serve both sides of a transaction,” he asked.

       Mr. Nabors also raised concerns about the language applying only to those who
work at non-depository lending institutions, noting that it sets the stage for distribution
channel bias.

        The witness further questioned a potential 24-hour window in which borrowers
would have to have final details on the loans they are preparing to sign. Rather than
creating the 24-hour standard, Mr. Nabors said his group would be more supportive of
requiring one business day notice.

        Rep. Bill Coley (R-West Chester) urged the industry to take steps to report bad
actors. “Would you start nailing the bad guys and reporting them to the director for us,”
he asked.

         Mr. Nabors said the industry has taken such steps, and has also supported a
tripling of registration fees to increase the Department of Commerce’s enforcement
activities. “They haven’t done their job,” he said.

       Paul Herdeg, Cuyahoga County’s housing manager, urged support for the bill,
noting that the county has seen a significant increase in foreclosures in recent years.
Along with those foreclosures, he said, are increased occasions when borrowers have
entered refinancing deals with questionable characteristics.

         “We are concerned that our borrowers may not fully understand all the costs of
their refinance transactions,” Mr. Herdeg said, noting that many are unaware of
provisions that would establish high variable interest rates, pre-payment penalties and the
failure to include tax and insurance payments in escrow.

        “We have often refused to sign off for a proposed refinance transaction because
the rate or fees are excessive, or because our borrower will be placed in danger of losing
their home,” he said. “In most of these cases, the mortgage broker comes back to us with
a more acceptable loan.”

        Rep. John Hagan (R-Alliance) said trying to educate consumers about lending
transactions could be helpful, but decisions to sign loans have to be made by the
borrowers. “No matter what protects we lay out for people, if they want to make very,
very dumb decisions, they’re going to make them,” he said.

       Bill Cosgrove, president of Strongsville’s Union National Mortgage Company,
noted that his business is already subject to “tremendous scrutiny” due to its use of FHA
and VA loans. Like Mr. Nabors, Mr. Cosgrove said the bill’s fiduciary relationship
language creates an inescapable conflict.

        Mr. Faith said the measure contains several provisions – CSPA application,
fiduciary duty and increasing enforcement, among others – that are worth fighting for.

       “Our hope with this bill is that it will be a strong deterrent, finally providing
unscrupulous lenders the incentive to change – or risk the consequences,” he said. “It’s
time for the bad guys to change or go out of business.”

Hannah Report, 3/23/06

       House Financial Institutions, Real Estate and Securities 03/23/2006

       SB185 CONSUMER SALES PRACTICES (PADGETT J) Expand the Consumer
Sales Practices Act to include predatory lending. Fourth hearing/opponent testimony.

       Witnesses sprang up like spring flowers reaching for the sun in another day of
double-figure testimony on the controversial predatory lending bill.

       The lead off witness was Robert M. Hart, Assistant Attorney General, who came
to support the bill, which, coincidentally, is sponsored by his boss Jim Petro's running
mate for Lt. Governor, Sen. Joy Padgett. Hart, an 18-year veteran of the AG's office,
spoke about the Consumers Sales Practices Act (CSPA) and the secondary market for
mortgage loans.

         In general terms, Hart outlined why the Ohio's CSPA is a good tool for this job at
hand. Unlike other state's versions, which bring banks and other depository lending
institutions under it, Hart said the Ohio CSPA does not, which is one reason why some
observers contend the "law is weak" compared to other states. He also made it clear that
the Ohio Department of Commerce, which has administrative authority for matters like
fines and penalties, is not the proper enforcement agency. However, Hart said it is the
headwater agency for assembling cases to be considered by either county prosecutors or
the AG's office, depending on whether the matter is a civil or a criminal one.

       Hart said the database provision of the bill will further enable the two agencies to
collaborate more than before.

        He also said the "right to cure," a provision supported by bill opponents, is a
"relatively novel" idea given that only ten other states include it in their anti-predatory
lending bills that contain mandatory attorney's fees. He said Petro has been opposed to
including such a provision in this bill.

       Hart made clear to members that the CSPA was all about the deception and
unconscionable acts that often occur at the "point of sale," whether it is at a check-out
counter or in negotiations for a home loan. He also dispelled the argument by many
opponents of the bill that provisions in the bill will deflate Ohio's homeownership rates,

saying simple that the bill "will not have an adverse impact on the resale of covered loans
in the secondary market."

       In his written testimony, Hart said research has shown that of sixteen recently
enacted state anti-predatory lending bills, including Ohio's enactment of HB386, in every
case the new statutes contained a provision creating assignee liability for loans subject to
the new laws and in every case but Massachusetts, Standard & Poors (S&P) - a well
respected rating agency - decided to rate the loans compared to not rating them, which
would have put a cloud over the loans.

         He said independent credit rating agencies like S&P "will have no cause for
concern regarding the issue of assignee liability as CSPA coverage of select Ohio
mortgage loans (i.e., only those issued by non-banking mortgage lenders - the focus of
the bill) as proposed in the bill will not create any new assignee liability under Ohio law."
As a result of this, he said the risk factor is of limited importance in rating transactions
due to the fact that such liability is to be determined by current Ohio law already known
to rating companies.

        Continuing, Hart said that "Ohio will not face the problem that Georgia had with
its original predatory lending statute because "SB185 will clearly delineate that the only
mortgage loans that would be subject to the CSPA are those Ohio loans made by non-
depository mortgage lenders." He said the definition is "concrete and concise" and
forecasted that "rating services will clearly know which loans are covered and which are

         Contrary to the prognostications of the bill's critics, Hart said "all evidence
supports the position that the national rating services will have no difficulty rating Ohio
mortgage loans subject to the CSPA, especially given the absence of any new assignee
liability provision, the presence of a clearly defined coverage, well established standards
for determining violations and a safe harbor to prevent large damage awards."

        Hart made it clear that the CSPA is about the "point of sale" transaction and that
people who entered into a deal only to have job loss, divorce or an unsuspected health
crisis cause them to default on their loans and then fall into either foreclosure or
bankruptcy would have no cause of action through the CSPA. Hart also informed
members that Petro will testify himself before the committee early next week, possibly

        Among the others who testified at the hearing that than ran from early morning to
late after noon was Jim Nabors, President of the National Association of Mortgage
Brokers, Clyde Wathen, homeowners in Hamilton, Ohio, Brian Cole of First Nations
Mortgage, Tom Coriell of TBN of Ohio, Debbie DuPilka, President and Operations
Manager of Superior Mortgage Solutions, Paul Herdeg, Housing Manager for Cuyahoga
County, C. William Cosgrove, President and Chief Executive Officer of Union National
Mortgage Co., Valerie Roller, National Association of Consumer Advocates and Bob
Niemi, 2006 President of the Columbus Mortgage Brokers Association.

        Nabors, a strong critic of the fiduciary provision of the bill, offered an alternative
to members in lieu of it. Offer a product produced from a series of roundtable discussions
last year with the Federal Department of Housing and Urban Development and the Small
Business Administration, Nabors presented members with a Good Faith Estimate form he
said will obviate the need for the fiduciary provision that has riled up opponents.

       The committee will meet again next week on Monday (at 10 A.M.), Tuesday (at
8:30 A.M.) and Wednesday (at 8:30 A.M.) in room 017. House Republicans are
scheduled to caucus at 9:30 A.M. on Wednesday, so the committee will likely break to
accommodate that meeting.


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