High Foreclosure Rate Sparks New Law in Ohio

Cleveland Heights took its place alongside Dayton, Toledo and Cleveland on the list of Ohio cities with anti-predatory lending legislation recently, as it passed an ordinance putting limits on certain practices for high-cost home loans.

But while the American Financial Services Association has responded to other local predatory lending laws by suing the cities that passed them, it does not currently have plans to take Cleveland Heights to court.

"We're waiting to see what happens with some other cases before deciding what to do in Cleveland Heights," said Lynne Strang, a spokeswoman for AFSA. The group has legal action pending in six cities, three in Ohio. It charges that municipal-level governments lack the authority to regulate mortgage lending.

Luther Liggett, an attorney at Bricker and Eckler LLP who has been retained by the Ohio Mortgage Bankers Association as legal counsel pertaining to predatory lending issues, said the fate of the Cleveland Heights ordinance will be decided by the outcome of the other Ohio cases. Both Dayton and Cleveland look ripe for decision.

Relatively speaking, the Cleveland Heights ordinance is not particularly strict. Besides having fairly mild disclosure provisions, it puts restrictions on prepayment penalties, refinances and several other practices. A covered loan is defined by the same criteria as the federal HOEPA guidelines.

But it is the idea that cities can regulate mortgage loans that AFSA is questioning, not the particulars of any one law. Mortgage industry types predict serious damage to the market if a nationwide patchwork of local laws is created, while localities say that they are responsible for protecting their constituents when other protections are lacking.

In Ohio, a state predatory lending law does exist, though consumer advocates charge it was put in place to pre-empt local laws, rather than to provide protections to borrowers. Since local politicians continued to hear of abuses, it only made sense that they would act, said Charles Bromley, the director of a fair housing group called the Housing Research and Advocacy Center.

"When you're a councilman, you're the one who gets the call about the house with the tall grass, vacant, and there are kids running around and what are you going to do about it," said Mr. Bromley. "Those phone calls do not go to state representatives or state senators."

According to Mr. Bromley, foreclosures doubled in Cuyahoga County, where both Cleveland and Cleveland Heights are located, from 4,700 in 1997 to 9,598 in 2002. In Cleveland Heights, this sparked the concern of local churches whose members were often the ones being foreclosed upon. They formed Northeast Ohio Alliance for Hope, which, besides requiring that financial institutions certify that they are not involved in predatory lending before doing business with a member congregation, pushed for the Cleveland Heights ordinance.

The Cleveland Heights legislation states that the pre-emption clause of the Ohio law violates the home rule provision of the state constitution by keeping cities from passing laws to protect their citizens. This is the same argument being used by Toledo, Dayton and Cleveland in their respective lawsuits.

Although it is a moral victory, said Mr. Bromley, who is a NOAH member, the Cleveland Heights ordinance doesn't do much regulating on its own. This fact, he believes, is underlined by the lack of reaction from AFSA.

"It's a predatory lending law in name, which is important," he said. "But the fact that the American Financial Services Association did not sue the city of Cleveland Heights, you figure (we) must have a pretty lame ordinance."

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