(Update June 2005)
Predatory mortgage lending, as the name implies, is the practice whereby lenders offer unsuspecting homeowners loans with high interest rates and fees. Predatory practices vary from community to community. Usually lenders or mortgage brokers: charge borrowers excessive, often hidden fees; successively refinance loans (i.e., flipping) at no benefit to the borrower; make loans without regard to a borrower's ability to repay; and engage in high-pressure sales tactics or outright fraud and deception. The population groups that are most affected by these practices include the elderly and low-income individuals, African Americans and other minorities.
Predatory lending has received considerable attention in the news media, largely because of the efforts of local and national community and consumer organizations. In response, high profile enforcement actions were taken against some of the more notorious predators and several states have adopted new consumer protection measures. The Department of Housing and Urban Development, the Treasury Department, the Federal Reserve Board, and the Office of the Comptroller of the Currency have all used their regulatory authority to bring additional homeowners under existing consumer protections and to gather more and better data about these practices.
Cardinal McCarrick has written to Congress on behalf of the USCCB insisting, Efforts to revitalize neighborhoods and to expand homeownership among low income families are being threatened by abusive lending practices. These practices termed, predatory lending, trap far too many unsophisticated and vulnerable people, often the elderly, into high cost loans that frequently lead to foreclosure after stripping any equity from the home. The Catechism of the Catholic Church condemns this sort of speculation, this usury, as morally illicit. (2409)
In March, two anti-predatory lending bills were introduced to combat predatory lending. The first bill, the Truth In Lending Act (H.R. 1182), was introduced by Representatives Brad Miller (D-CA), Mel Watt (D-NC), and Barney Frank (D-MA). The second bill, the Responsible Lending Act (H.R. 1295), was introduced by Representatives Bob Ney (R-OH) and Paul Kanjorski (D-PA). While both bills would address predatory lending concerns by creating standards for sub-prime lenders whose practices targeted at minorities, elderly, and low income people, there are substantial differences between the two bills.
The House Financial Services Subcommittees on Financial Institutions and Consumer Credit and Housing and Community Opportunity have held a number of hearings on anti-predatory lending legislation. The witnesses, banking professionals and community groups agreed that predatory lending is prevalent in low income communities and that legislation would be helpful to address the issue. They differed over which was the better legislative approach.
Some felt that H.R. 1295 was better because it would create national standards requiring all banks to comply. These national standards, however, would preempt any state law, even those that provide a stronger enforcement against anti-predatory lending practices. The bill provides a balance, its supporters believe, between combating predatory lending and providing credit to those less likely to be served in traditional markets.
On the other hand, consumer groups including the USCCB (supporters of the Truth in Lending Act) believe H.R. 1182 has stronger legislative language prohibiting specific predatory lending activities like unwarranted high interest rates, excessive fees, and refinancing loans when there is no tangible benefit to the borrower similar to North Carolinas law.
On another front, The National Council of La Raza (NCLR) released an issue brief looking at predatory lending practices in the Hispanic homebuyer market. Jeopardizing Hispanic Homeownership: Predatory Practices in the Homebuying Market looks at mortgage lending trends in the Hispanic community, including barriers to the prime market, sub-prime lending trends, and issues surrounding predatory lending.
The report finds that while Hispanics have been taking out home loans at increasing rates, they have also had higher rates of loans from subprime lenders and higher rejection rates than whites, even when controlling for income. The authors argue that inefficiencies in the mortgage market hinder it from better serving Hispanics. These barriers include location of bank branches, outreach efforts of lending institutions, and underwriting tools. Additionally, while the sub-prime lending market has helped get loans for numerous families deemed too risky for prime loans, it has also led to an increase of predatory lending.
This report is available for download on the NCLR website: www.nclr.org/content/publications/detail/31596.
What You Can Do
- Contact your Representative and Senators and urge them to support laws that would tighten the definition of "high cost" mortgages and would give people who borrow under such conditions additional protections.
- Urge then also to oppose any federal preemption of state and local anti-predatory lending laws.
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