| HUD to Focus on Predatory Lending By Paul Shepard |
WASHINGTON Under stern questioning from a Senate panel on why crooked home lending is on the rise, Housing Secretary Andrew Cuomo announced his agency will propose new laws to fight a problem one lawmaker called a "virus, and it's spreading nation- wide."
Cuomo told lawmakers on Thursday that the panel will focus on unscrupulous home lending patterns in Baltimore, where he said some of the worst abuses occur, and other cities.
Called predatory lending by its critics, some mortgage and home- equity loan companies seek low-income borrowers who have a hard time securing traditional mortgages and charge unfairly high fees and interest.
"It is a national crisis," Cuomo said, announcing that the panel will convene next week for two months. "This will be the genesis for national policy."
But Senate Appropriations Committee member Barbara Mikulski, D-Md., who recently gathered first-hand testimony on the practice during a hearing in Baltimore, urged Cuomo and his HUD colleagues to "get out of headquarters and take the same tour I did."
The issue is drawing interest from more and more policy-shapers.
Last week, Federal Reserve Chairman Alan Greenspan for the first time decried the practice. Comptroller of the Currency John D. Hawke Jr., who oversees nationally chartered banks, also criticized the practice in a speech to a community investment group last week.
"It's more like a virus and it's spreading nationwide," Mikulski said.
Legislation to curb predatory lending has been proposed in California, Illinois, Maryland, Minnesota, Missouri and New York.
In some cases, consumer finance companies have taken advantage of people with low incomes or damaged credit histories, many of them minorities, who cannot get conventional loans and are desperate to become homeowners or raise cash by borrowing against their homes.
Another common form of fraud is "property flipping," in which a property is bought and then resold or "flipped" several times, each time at a falsely inflated higher price, among a single group of people.
The property is then sold to an unsuspecting mortgage company that, seeing the previous purchase and sale prices, pays much more for the property than its market value.
Mikulski said in some cases, the home sellers dictate the terms to judge the home's market price. She said that situation was like "Bonnie calling Clyde to be an appraiser."
The issue of crooked home lending practices exposes the down side of the national boom in home ownership rates in recent years.
More than 66.7 percent of Americans now own their own homes. And though their rates lag behind whites, more blacks and Hispanics than ever are now homeowners, reflecting low interest rates and low unemployment.
But in the rush to join the home-owning trend, people with poor credit who must get mortgages at higher interest rates also called sub-prime rates find themselves at the mercy of lenders.
Cuomo said the volume of sub-prime borrowing has increased from $20 to more than $150 billion from 1993 to 1998.
"The explosion in sub-prime lending has opened the door for abuse of a vulnerable population," Cuomo said.
The Department of Housing and Urban Development Web site can be found at: http://www.hud.gov/news.html