This week the state legislature could pass a law that would protect Ohio's homeowners from unscrupulous lenders and brokers.
Then again, it could hand predatory lenders a big, fat escape clause.
The merger of two vastly different bills is being negotiated largely in secret. It's been put on a fast track that will shoot it from a conference committee to a full vote of the House and Senate in less than a week.
Legislators crafted this bill while dancing around special interests. They've talked about curbing predatory lending for years, but when it was time to deliver, they pulled what amounts to a legislative all-nighter and produced a mess.
The legislature has tied itself in knots trying to define predatory lending, but in the broadest sense, it's the naughty cousin of subprime lending - loans aimed at those with bad credit. Predatory loans rely on inflated appraisals, overpriced loans and balloon payments to get borrowers to pay much more than they can afford to buy a home. Borrowers often can't refinance because of punitive prepayment penalties written into their contracts.
A homebuyer who signs a predatory loan can be doomed to foreclosure before he ever gets the key to his home.
Ohio has one of the highest foreclosure rates in the nation. Many consumer advocates point to predatory lending as a primary cause. This is also one of the few states that hasn't seriously tried to regulate the practice. So when the legislature announced it was going to do something about the problem, lots of people sighed in relief.
They should have been holding their breath.
The Senate acted first. It drafted S.B. 185, saying the mortgage industry would have to operate under the Consumer Sales Practices Act - a state law that bars unfair or deceptive selling tactics.
Dozens of states already apply similar laws to mortgage lending. As usual, Ohio was simply trying to catch up.
Banking companies said from the start that they should be left out because they were already regulated by the feds.
They were omitted - even though many have nonbank affiliates that do a brisk business in foreclosures and subprime loans.
A glaring problem with a late draft of the Senate bill was that, in deciding to bring much of the mortgage industry under the consumer sales law, the Finance and Financial Institutions Committee made changes that would have gutted the existing consumer law.
In their rewrite, all consumers - anyone defrauded in any transaction - would have had a much harder time collecting damages and attorneys' fees.
Consumer advocates complained. The Senate fixed some sections. The version that passed included changes that gave busi- nesses an edge over consumers in collecting attorneys' fees, but it did put nonbank lenders and brokers under the consumer law.
For weeks, mortgage lobbyists had swarmed through the Senate as thick as midges in May. When it became clear that the Senate would pass a bill that tightened predatory lending rules, the lobbyists vanished.
They tore over to the House - to start working over representatives.
Banks with subprime operations and the mortgage lobby have a lot invested in this fight.
Political action committees that represented mortgage bankers and bankers with subprime affiliates are generous donors to legislators in any year. Over the 10 months from July 2005 to April 2006, they slid at least $42,000 into the campaign coffers of senators and representatives who sat on committees that drafted the bills. Lobbying firms that represented the industry donated an additional $20,000.
In the House, industry representatives howled that regulating their operations under the consumer law would kill the mortgage industry. Despite those claims, subprime lending hasn't ground to a halt in any states with similar laws.
The mortgage interests also insisted that lenders could police their own industry.
Sen. Joy Padgett, the Coshocton Republican who wrote the original Senate version, said those promises were often broken in the past.
"They had at least three chances at bat to clean up their industry . . . and chose not to do this," Padgett said. "This bill would not have received the legs it did had there not been sort of a thumbing of the nose - saying, 'We do have bad actors, we're just not going to deal with it.' "
But under heavy lobbying, the House Financial Institutions, Real Estate and Securities Committee produced a bill that narrowly defined predatory lending, although it did make an effort to extend the bill's reach to unregulated bank affiliates.
But for every good idea in the House bill - and there were many - there was a giveback. Overall, the House version of S.B. 185 stressed disclosure - suggesting it was OK to charge people punitive fees or trap them in bad loans as long as somewhere in the paperwork the lender mentioned that.
Disclosure isn't the answer. Outlawing abusive practices is.
How did the House bill become so flawed? Padgett says term limits have produced a House whose members don't have long enough experience with the industry's broken promises.
Another problem was that a coalition of consumer advocates had a falling out over changes the Senate had proposed to the Consumer Sales Practices Act. Some consumer activists, who'd pushed for legislation for a half-dozen years, wanted it to move forward flaws and all.
By the time consumer advocates stopped tussling with each other, the united mortgage lobby had a head start in the House.
The House leadership wanted the bill brought to a vote before the April break. The Senate had taken five months to hold hearings and rework Padgett's bill, but the House committee crammed testimony and a complete rewrite into just five weeks.
The bill was still being reworked the morning of the vote. On March 29, on the House's last day in session before the May primary, the House passed the bill along with a slew of others.
In an election year, who could vote against something that claimed to protect consumers?
I'd love to know if any of the legislators who voted for the bill read it first.
Bill Faith, a consumer advocate who leads the Coalition on Homelessness and Housing in Ohio, said it took him - with a handful of lawyers - three days to slog through the 100-plus page final version. They found many drafting errors that Faith blamed on the rushed process.
The bill bounced back to the Senate. Although mortgage lobbyists and some House members said the predatory lending bill was the toughest legislation they'd ever seen, the Senate didn't buy it, and rejected the House version.
Now, after weeks of backroom wheeling and dealing, members of the House and Senate have outlined a compromise that people involved in the negotiations say is closer to the Senate version than the House's, but without the attempt to water down the existing Consumer Sales Practices Act.
The plan hatched behind the scenes is supposed to be finished up in public meetings by a conference committee: Reps. Chris Widener, Mark Wagoner and Dan Stewart; Sens. Padgett, John Carey and Tom Roberts.
Once again, the rush is on. Leaders of both houses insist on a vote before the summer break that is to start at the end of the day Thursday. The conference committee has less than seven days to write a bill and produce it for both houses to vote on.
I don't know what the committee will produce. I do know that its members are going to be under pressure to give the industry loopholes.
Every homeowner in this state - even folks with great credit - has a stake in what comes out of the legislature. If your neighbor loses his home, it affects your home value.
In the gallop to the finish line, the committee members and all legislators need to do what they were elected to do.
They need to seriously consider the predatory-lending bill that lands before them.
They need to know that we, the people, care about more than the law's name.
We care about each and every line.
© 2006 The Plain Dealer