HUD Archives: News Releases

HUD No. 00-64
Further Information: For Release
In the Washington, DC area: 202/708-0685 9:30 a.m. Thursday
Or contact your local HUD office March 30, 2000


WASHINGTON - Calling it "the downside of an economic upturn" which has produced the highest homeownership rates in the nation's history, Housing and Urban Development Secretary Andrew Cuomo today announced that he will convene a national task force and hold hearings to determine how to "eliminate the nightmare of predatory lending from the American dream of homeownership."

In testimony before the Senate Appropriations Committee today, the Secretary said he would use authority under the Fair Housing Act and the Real Estate Settlement Procedures Act (RESPA) to convene a HUD Task Force On Predatory Lending and conduct publichearings in at least four cities to recommend strategies to combat predatory lending. The first hearing will be in Baltimore, which HUD also intends to use as an operational laboratory to examine and address predatory lending practices.

The growing trend of predatory lending in the booming subprime mortgage lending market has been well-documented by regulators, including the Federal Reserve and FDIC, academics and community groups. Evidence indicates that the vast majority of mortgage fraud and predatory lending activities - including excessive fees, provision of credit life insurance and prepayment penalties - occurs in the conventional subprime lending market. Subprime lenders generally do not make government-backed loans and often operate outside of the current federal regulatory structure.

This relatively new sector of the mortgage market is booming. HUD estimates that subprime loan volume has grown from $20 billion in 1993 to more than $150 billion in 1998.

"The economic boom which has produced the highest homeownership rate in history has a downside and that is predatory lending," Cuomo said. "Though HUD has moved aggressively to eliminate thousands of unqualified appraisers and dozens of lenders from FHA housing programs, the simple fact is that many of these same lenders and appraisers are in the conventional mortgage market often charging exorbitant fees, imposing onerous terms and saddling families with debts they'll never be able to retire. Just as HUD has moved to eliminate predatory lending from FHA programs, we must move and move now to eliminate them from the conventional market."

Baltimore, which has recently seen a significant increase in predatory lending abuses, will serve as the site of the first hearing and as a case study to understand how the practices subvert a real estate market and what steps can be taken to eliminate the practices. A complete hearing schedule will be released by HUD shortly.

HUD's Task Force On Predatory Lending will include Paul Reid of the Mortgage Bankers Association, Tom Downs of the National Association of Home Builders, Steve Kest of ACORN, Peter Skillern of the Community Reinvestment Coalition of North Carolina, John Taylor of the National Community Reinvestment Coalition, Gail Cincotta of the National Training Institute-Chicago, Ken Strong of the South East Community Development Corporation, Eric Belsky of Harvard University's Joint Center for Housing, Vincent Quayle of the St. Ambrose Housing Aid Center, Boise Mayor Brent Coles, Chicago Mayor Richard Daley, Denver Mayor Wellington Webb, Detroit Mayor Dennis Archer, and Los Angeles City Attorney James Hahn.

Cuomo said HUD's Federal Housing Administration (FHA) has already taken a number of steps to eliminate predatory lending practices from its programs. The Homebuyer Protection Plan protects borrowers from bad appraisals and Credit Watch, a program that terminates lenders with excessive default rates from FHA programs.

Cuomo said FHA is the only lender in the nation to require mandatory testing of appraisers and, further, the only one to require an assessment of the physical condition as part of property appraisals. He said that many of FHA's reforms could serve as a model for combating predatory lending in the conventional housing market.

The Real Estate Settlement Procedures Act, passed in 1974, was intended to help homebuyers fully understand the terms of their loans and to protect them against terms or practices that could cause them to lose money, credit worthiness or their homes. Under RESPA, the HUD Secretary is authorized to conduct hearings to investigate conditions and practices that bear upon provisions of the Act and to prescribe regulations or recommend legislation to correct any problems. The Secretary is also empowered to issue subpoenas in furtherance of these hearings.

Cuomo made this announcement at a hearing of the Senate Appropriations Subcommittee on HUD's proposed budget for fiscal year 2001. President Clinton has proposed increasing the HUD budget by $6 billion to $32.1 billion, the strongest HUD budget in more than 20 years, with increases in every program area.

In his testimony, Cuomo thanked the members of the Committee for their support of HUD initiatives in recent years, including an increase to the FHA mortgage insurance limits, funding of 110,000 new rental assistance vouchers, public housing reform act, and a tripling of the budget for programs that help the homeless.

HUD's proposed fiscal year 2001 budget would provide 120,000 new housing vouchers; increase funding for public housing, elderly housing, homeless services, the Community Development Block Grant program and fair housing enforcement; and fund an additional 10 Empowerment Zones.

The President's budget also calls for funding to the American Private Investment Corporation to leverage some $1.5 billion in private investments in low- and moderate-income areas; a $30 million Community Gun Safety and Violence Reduction initiative; and a dramatic increase in funding to create jobs and promote economic development in distressed communities.

In his testimony, Cuomo also reported that FHA is in its strongest financial condition since it was created in 1934, with a record economic value of $16.6 billion. A recent independent report on FHA by the accounting firm of Deloitte & Touche found that FHA has made a remarkable turnaround from just ten years ago. The FHA Insurance Fund had an economic value of a negative $2.7 billion in 1990.

In response to a Deloitte & Touche report found that the FHA Insurance Fund for fiscal year 1999 was more than $5 billion above previous estimates, in March President Clinton directed Secretary Cuomo, Office of Management and Budget Director Jack Lew and Domestic Policy Council Director Bruce Reed to provide "recommendations on how newly available funds can be used to further strengthen federal housing programs and develop a plan to enhance comprehensive affordable housing opportunities."

The recommendations could include subsidizing the construction of new affordable rental housing, down payment assistance programs to increase homeownership, funding for new rental assistance vouchers and other initiatives.

Cuomo also reported that FHA's reformed processes for disposition of HUD-owned homes has reduced the time it takes HUD to sell homes by 20 percent, increased the sales price per property by 19 percent and increased HUD recoveries on insurance claims by $4,500 per property, resulting in savings of more than $260 million.

In his testimony, the Secretary also reiterated his call for the Congress to provide an additional 120,000 rental assistance vouchers. He noted that a HUD report issued earlier this week - Rental Housing - The Worsening Crisis - found that at least 5.4 million very-low-income families presently not receiving HUD assistance are paying over half their income for housing or live in severely distressed housing, an increase of 12 percent since the nation's economic recovery began in 1991.

The same HUD report found that the rental housing that is affordable to families with incomes below 30 percent of area median income had shrunk by 370,000 units, or five percent, between 1991 and 1997.

HUD's proposed budget for fiscal year 2001 calls for an additional 120,000 rental assistance vouchers, including 10,000 vouchers for HUD's housing production programs. The housing production vouchers are expected to lead to the production of an additional 40,000 units of affordable, mixed-income housing.

Cuomo told the Committee that HUD's HOPE VI program already had demolished some 52,000 units of dilapidated public housing and had committed some $3.5 billion for 124 new projects that will provide 62,000 units of housing.

He also noted that, consistent with language in last year's Conference report, HUD had moved forward to "bridge the digital divide" and expected to have established some 1,000 new cyber-centers in HUD-assisted and public housing complexes over the next two years.


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