ATLANTA - Gov. Roy Barnes announced his predatory lending legislation Thursday, which is designed to restrict high-cost lenders from practices that financially ruin poor and elderly homeowners.
The legislation, among other things, would establish a definition for high-cost loans and ban such practices as loan flipping. In flipping, lenders constantly refinance mortgage loans to generate fees for brokers, with little benefit to the borrower.
"People should not be scared into borrowing more money, and paying even more fees, when there is absolutely no rational reason or benefit for them to do so," Mr. Barnes said.
His bill also would limit prepayment fees and prohibit balloon mortgages in high-cost loan situations. Balloon mortgages are short-term mortgages that have some features of a fixed-rate mortgage. Although monthly payments may be reasonable, the last payment is inflated. Many homeowners are unable to make the last, large payment.
High-cost mortgage loans are legal, but increasingly have drawn criticism by policy-makers, who say homeowners can face unaffordable mortgage payments, loss of their equity and even loss of their homes in foreclosure.
Mr. Barnes' legislation would prohibit high-cost loans from being given to people who cannot pay all of their monthly bills for 50 percent or less of their monthly take-home income.
"Bankruptcies are forced, homes are lost and lives are ruined because of this practice," he said. "People are tricked into owing more money that they could ever dream of paying back, and talked into believing there is a way out - which only makes their outlook bleaker."
The legislation contains a blend of recommendations from other states' plans and the AARP.