Purpose

Establishes the Joint Study Committee on Home Loan Practices to review and contrast current practices in the high cost home loan market in Arizona.

Background

The home loan or mortgage market in Arizona is a complex market in which lenders use a variety of tools to measure their risk when they lend money to consumers. Also, these lenders engage brokers to sell their money products to consumers and utilize incentives to encourage the sale of one particular product over another. When a consumer has chosen a product, there are costs associated with purchasing the money to buy a home that include origination fees, title, appraisal, underwriting fees and associated costs with processing the loan. These costs may fluctuate depending on the terms of the loan being sold.

While consumers’ with adequate income-to-debt ratios and better-than-average credit enjoy a wider variety of lower cost loans, those with less-than perfect credit or other issues may require what is described by industry as a sub-prime loan. The industry argues that these loans make money available to segments of society that are under-served. Critics argue that when the sub-prime mortgages charges either an exorbitant interest rate or abnormally high closing costs, the loan moves from a sub-prime loan to a predatory loan. These individuals argue that the loans at best are aimed at an ill-informed public or, at worst constitute fraud by those selling the loans or lending the money. Other factors may play into whether or not a predatory loan situation exists. No universally accepted definition of predatory lending practices exists in Arizona, and arguably not in the United States although other governments have passed legislation regulating predatory lending practices.

This measure establishes the Joint Study Committee on Home Loan Practices to review and contrast current practices in the high cost home loan market in Arizona.

Under this measure members are eligible for reimbursement of expenses but not for compensation.

Provisions

1. Establishes a 13-member Study Committee to examine:

a) Current practices of lenders of high cost home loans.

b) Points and fees charged.

c) Prepayment penalties, balloon payments, negative amortization, advance payments, and default rates.

2. Requires a recommendation from the Committee of a plan to improve lending practices for high cost home loans that reduce the risk of default or foreclosures.

3. Allows the Committee to use Department of Banking and Legislative Staff for technical assistance.

4. Requires the Committee report their findings and recommendations to the Governor, the President of the Senate, and the Speaker of the House of Representatives no later than December 15, 2002.

5. Repeals the Committee on December 31, 2002.

6. Provides for a general effective date.

TM/ac