Florida law prohibits predatory lending.
The Florida Fair Lending Act, sometimes referred to as the Predatory Mortgage Loan Act, was passed by the Florida legislature in 2002. The Act was passed to stop predatory lending practices such as offering easy access to loans to people who could not afford to repay them, using high-pressure sales tactics, charging outrageous fees and demanding unaffordable payments.
Background
According to the South Florida Business Journal, Florida was experiencing a speculative real estate bubble until 2005, fueled in part by predatory lending practices. The Journal states, "at the peak of overvaluation in the fourth quarter of 2005, there were 52 markets that IHS Global Insight considered to be extremely overvalued and 85 more that were significantly overvalued. Not surprisingly, these metros crashed hard when the real estate market collapsed," the report noted.
Purpose
Florida legislators felt that predatory lending practices were involved in the real estate bubble and that this could result in massive foreclosures. The Fair Lending Act was passed to stop the selling of unsustainable mortgages and mitigate foreclosures. According to CNBC, Florida has the second-highest foreclosure rate in the nation after Nevada, with one out of every 155 households in foreclosure.
Previous Practices
One of the practices addressed in the Act is the repeated refinancing of homes for equity loans to pay off debts. The bill states that the fees and points charged for the refinancing gave immediate income to the creditor, and as long as any equity remained in the home the creditor could benefit by pressuring homeowners to refinance. The many closing fees, higher payments and loss of equity led to foreclosures.
Prohibited Practices
Practices prohibited by the Fair Lending Act include balloon payments maturing in less than ten years, extending credit regardless of borrower's ability to repay and charging prepayment penalties for longer than three years. Also prohibited is increased interest on loans going into default, calling a loan due without cause and charging late fees in excess of 5 percent of the payment.
Disclosures
Lenders are required to disclose, at least three days prior to closing, that borrowers could lose their home in the event of a default and that interest rates may vary. If borrowers are refinancing to pay debts, they must be advised to consult a credit counseling agency about refinancing their home and that they do not have to go through with the loan, even if they have filled out an application. Any changes in loan terms require another three-day disclosure period.
