News Release

New Jersey Department of
Banking and Insurance
Commissioner Holly C. Bakke

For Immediate Release:  November 18, 2003

For Further Information::  Bill Heine - (609) 292-5064

Mortgage Industry Rebuked Over Predatory Lending Law
Banking director faults lenders for refusing to make certain loans

TRENTON - New Jersey's banking director today chastised those large mortgage lenders and funding sources for attacking the new predatory lending law and for threatening to stop making certain loans because they do not want to comply with the important consumer protections contained in the law.

"It really disturbs us when we hear that a group of large lenders or funding sources have refused to continue doing business with you because they do not want to deal with the new law," H. Robert Tillman, director of the Division of Banking within the New Jersey Department of Banking and Insurance, told a consortium of mortgage bankers gathered at Forsgate Country Club, Jamesburg.

The New Jersey Home Ownership Security Act becomes effective Nov. 27. In recent weeks, mortgage brokers from around New Jersey have been calling the Department saying that their funding sources are drying up because large lenders do not want to comply with the law.

"We also have learned that many of our lenders have wasted their time and money by attending programs or presentations where too much time was spent bashing the new law or pointing out the problems and pitfalls, and not enough time explaining how you could successfully navigate the new rules and continue operating," Director Tillman said. "Now, many lenders are hastily trying to get this type of advice."

Director Tillman also reiterated his dissatisfaction with Standard & Poor's refusal to rate all cash-out transactions because it cannot determine whether those transactions fall below the triggers or whether there were home improvement contractors involved with the loan, especially when there are ways to identify these contractor loans.

"We hear that recent news articles state that cash-outs represent approximately 40 percent of the market, while home improvement contractor-type loans represent less than 1.5 percent of the market," Director Tillman said. "It's just plain ludicrous to shut down 40 percent of the market based on potential risks relating to 1.5 percent of the market."

The Department is issuing a second Bulletin today, reflecting many weeks of discussions with the major rating agencies, that specifically addresses this cash-out issue.

Unlike similar efforts in other jurisdictions, the New Jersey law is fair to lenders while providing adequate protection to consumers. It prohibits only a few practices for all "home loans" and all "covered loans," such as financing credit insurance, encouraging default, charging late payment fees in excess of 5 percent, accelerating debt at the creditor's sole discretion, and charging for payoff information.

For "high cost" loans, the law prohibits a long list of additional practices, including most balloon payments, negative amortization, increasing rates after default, inconvenient arbitration standards, charging modification fees, and financing points/fees in excess of 2 percent.

In an effort to help lenders comply with the law, and to monitor the potential impact on the residential lending market, the Department met with industry leaders to discuss critical elements of the law, and held six workshops for licensed lenders. It also issued two bulletins to assist lenders with their efforts to comply with the new law.

If the law is properly followed, the Department is confident that most lending will not be adversely affected for a number of reasons:

"New Jersey residents deserve to have lenders that offer the most competitive loans possible, not lenders who run away from competition," Director Tillman said. "Our lenders and brokers can comply with the new law if the loan industry would give them a fair chance."

Bulletin 03-30

Bulletin 03-15