Predatory Lending Assailed
June 20, 2000
HUD/Treasury Report, Remedies Rejected By MBA
By Alex Freemon
Inman News Features
Treasury Secretary Lawrence Summers and Housing and Urban Development Secretary Andrew Cuomo, as co-chairs of the National Predatory Lending Task Force, released a report to Congress today in an effort to seek regulatory legislation to reduce such lending practices.
The report and its recommendations drew immediate fire from the lending industry, which called the report confusing and its proposed regulations too restrictive.
Introduced as a preliminary analysis of mortgage originations in the Atlanta metropolitan area, the government report used 1998 data to conclude that sub-prime lending occurs primarily in low-income and minority neighborhoods.
However, the Mortgage Bankers Association of America said that the report's analysis is confusing and its proposed remedies flawed for a situation that the MBA does not agree is confined to low income and minority neighborhoods.
The Treasury/HUD report cites "a growing body of anecdotal evidence" indicating that some sub-prime lenders engage in abusive lending practices that ultimately jeopardize borrowers' home equity and put them at a greater risk of foreclosure. The report said such lenders generally operate outside the federal regulatory structure.
Introducing the report, Cuomo said "predatory lenders are greedily devouring families' life savings and destroying good neighborhoods all across the country," and alluded to "horror stories at our forums around the country about the suffering these lenders have caused."
However, the effect of sub-prime lending over the last several years "has been a beneficial development for borrowers with impaired or limited credit histories," the report said. It recommends new regulations to prevent such lenders from unfairly taking advantage of their clients.
Among the remedies proposed are:
- Improving consumer literacy and disclosure in which creditors should recommend to certain loan applicants that they obtain home mortgage counseling.
- Stopping harmful sales practices including "flipping" and lending without regard to ability to repay.
- Restricting abusive terms and conditions on high-cost loans.
- Awarding business that promote borrowers from sub-prime to prime mortgage markets.
The MBA countered that the report?s results and remedial measures with its own study, which argued that homebuyers' first desire is a simpler mortgage process, which it claims the government has obstructed.
The MBA argued that the regulations proposed in the agencies' report would result in an even more complex mortgage process, which they say would raise cost of borrowing and leave consumers more confused and less eligible for a wider range of mortgage products. The MBA added that government proposals don't offer solutions to the dilemma of predatory lending.
Among the factors that the MBA cites in defending its case in favor of sub-prime lending is their finding that less than one in 10 Americans knows what sub-prime lending is and that only two in 10 Americans have ever heard the term predatory lending.
The MBA also criticized some of HUD?s proposed regulatory measures including complex refinancing criteria, personal counseling before a final mortgage closure and restrictions barring consumers from obtaining a loan if they cannot demonstrate sufficient cash reserves.
MBA said such conditions would "shut the door" to homeownership for many low-income families.