By Mark Huffman
ConsumerAffairs.com
October 8, 2009
The foreclosure
crisis has been a national problem, but some states have been harder hit
than others. While unbridled speculation caused much of the problem,
researchers at the University of North Carolina say there's another reason
some states escaped the worst of the housing collapse.
States that adopted tough anti-predatory lending laws had lower foreclosure rates than states without those laws, according to the study just released by the UNC Center for Community Capital. Those states, the researchers argue, might have little or no problem today, if it hadn't been for actions by the U.S. Government.
In 2004, the federal government exempted national banks from state anti-predatory lending laws. National banks moved in and increased their subprime lending the most in states with those laws, the study says. After this loophole opened in 2004, national banks made riskier loans, especially in states where other lenders remained subject to strict anti-predatory lending laws.
These conclusions suggest that when state laws did apply, the laws did a better job of promoting quality lending. The study, "State Anti-Predatory Lending Laws: Impacts and Federal Preemption," examined patterns of lending and foreclosure before and after 2004, the year the U.S. Office of the Comptroller of the Currency created the "federal preemption" loophole that exempted national banks from laws enacted by some states to curb predatory lending.
"Long before the foreclosure crisis, many states were trying to plug what they saw as holes in consumer protection at the federal level by enacting their own anti-predatory lending laws," said center director Roberto G. Quercia. "Though laws varied from state to state, they were all trying to discourage lending practices that were harmful to borrowers, especially those that sap home equity and increase the risks of foreclosure."
This study underscores that strong state laws like ours in North Carolina help fight unfair loans and preserve homeownership. States need to be able to enforce their laws against all lenders to protect homeowners and our economy from risky and irresponsible lending," said North Carolina Attorney General Roy Cooper.
From 2004 to 2007, national banks dramatically increased their share of the subprime lending market, the study says. The biggest jump - from nine percent to 20 percent - occurred in those states where national banks had been subject to stricter state laws until 2004 but, after that date, gained a competitive advantage against other lenders who remained subject to higher state standards.
