WASHINGTON-A stew of government officials, lawyers, community activists, bankers and mortgage brokers railed against the booming "predatory" mortgage market here before the House Banking Committee on May 24. All the cooks did, however, was stir the pot, as in the end, Chairman Jim Leach, (R-Iowa) concluded that there already was statutory protection to prevent consumers from getting boiled by upfront fees, financed insurance premiums and prepayment penalties when they shop for a mortgage and happen to be less than wealthy or less than financially savvy. The great American Dream has turned into the awful American Nightmare for far too many citizens, testified community activist and ACORN President Gloria Waldron during the second panel of four witness panels. Everyone agreed that predatory lending is very bad, but no one present admitted to doing it or doing business with anyone who is doing it. The one-too-many cook spoiling the broth was the uninvited guest-the sharks in the frenzy-identified by regulators and lawmakers as the "nonbanks" and "payday lenders." Going up the food chain, Wall Street firms that invest in loans originated by these "predatory lenders" were castigated during a second hearing conducted by the Joint Task Force on Predatory Lending, which took place in New York City only several days earlier. Senator Charles Schumer (D-N.Y.) appeared in both places, seeking support for the bill he introduced a month ago, "The Predatory Lending Deterrence Act." (Similar legislation has been introduced by Rep. John LaFalce (D-N.Y.) and Senator Paul Sarbanes, (D-Md.)) The prospect for passage of new law seemed to dim as witness after witness offered opinions that existing coverage under HOEPA (Home Ownership Equity Protection Act) and TILA (Truth in Lending Act) could easily prevent the worst practices of abusive mortgage lenders. The sole credit union witness was Martin Eakes, CEO of Self Help Credit Union, Durham, North Carolina. Eakes is also chairman of the Coalition for Responsible Lending, which consists of members from some 80 organizations and CEOs of 120 financial institutions in the Tar Heel State. It was formed, he told the Committee, because three basic ingredients- paucity of regulation, explosive growth in subprime lending and a large number of unsophisticated borrowers- got mixed together at the best possible time: when the economy was sizzling and most everyone thought Coolidge's prediction of a chicken in every pot had come to pass. But more than 50,000 North Carolinians got feathers instead of the good gumbo that goes with home ownership, Eakes informed. The elderly are targeted along with the poor; black and white, he testified. The CRL, together with a mighty effort put forward by the North Carolina Credit Union League pressed the state legislature to pass a bill restricting the most commonly found tactics used by predators to strip the equity from borrowers. They succeeded. Then, the League and several outspoken individuals began a campaign to get the NCUA to pass a regulation prohibiting predatory practices and lobbied both credit union trade associations for support (CU Times, April 12). One offshoot of that effort may be found in CUNA's response (see related story) of suggested model mortgage lending standards. CUNA continues to maintain that no new legislation is necessary to stem the growth of abuse, and Eakes took a relatively pragmatic approach in his testimony as well. He told Credit Union Times that he just wants it to stop. To that end, if the Federal Reserve would only make a concerted effort to enforce the protections within HOEPA, many of these harmful methods would cease. "HOEPA has manifestly failed to stem the explosion of harmful lending abuses that has accompanied the recent subprime boom... Congress did provide the Federal Reserve Board with significant authority to address these problems through regulation, but to date the Board has not taken advantage of that authority," stated Eakes. Eakes went on to suggest a menu of action for the Board to take, including: prohibiting the financing of credit premiums; prohibit prepayment penalties for loans with interest rates greater than conventional; prohibit "flipping" borrowers through repeated fee-loaded refis; outlaw balloon payments altogether, and outlaw mandatory arbitration for HOEPA loans. (See a complete list of CRL's suggestions to the Fed at: (www.responsiblelending.org/FEDsughtm). "... are regulators and the Federal Reserve AWOL?" wondered Leach. Eakes also stressed that while good law should be enforced, bad law must be repealed. It's time to repeal the Alternative Mortgage Transaction Parity Act of 1982, he said. Passed in the high-interest rate environment of the early 1980s, when the secondary market was not so well-developed, it aimed to make it easier for thrifts to issue adjustable rate mortgages (ARMs) so they could match their held portfolios of fixed-rate mortgages with short-term deposits, a standard asset liability management technique, as federal institutions could do. They could do that "Notwithstanding any State constitutions, law or regulation." Because thrifts can now sell long-term mortgages in today's secondary market, many abusive lenders are able to structure their loans as "alternative mortgage transactions" and take advantage of the Parity Act to preempt state protections, he informed. There was a concerted effort in both hearings to somehow delineate abusive or predatory practices from plain vanilla subprime lending. Comptroller of the Currency John Hawke said that abuses needed to be addressed while "we also encourage consumer access to credit...and competition in the provision of financial services to low-and moderate-income families." Senator Schumer warned banks, which he cited for some of the blame due to their flight from low-income neighborhoods, which led to the rise of so many abusive finance companies. He said his bill goes beyond other legislation because it also makes investors who buy packaged loans from Wall Street firms responsible for proving that the securitization doesn't come from predatory lenders. During the Housing and Urban Development Joint Task Force hearing, HUD Secretary Andrew Cuomo asked pointedly, "Where does the money come from to establish the predatory lenders and who is buying the mortgages that these predatory lenders are originating?" -
caburger@cutimes.com
