|HUD No. 00-73|
|Further Information:||For Release|
|In the Washington, DC area: 202/708-0685||Sunday|
|Or contact your local HUD office||April 9, 2000|
CUOMO ANNOUNCES CALL FOR LEGISLATION BANNING PURCHASE OF PREDATORY LOANS
WASHINGTON - Housing and Urban Development Secretary Andrew Cuomo today announced he will call for legislation that would ban purchases of predatory loans by Fannie Mae and Freddie Mac.
"This proposal will protect consumers by stopping predators from turning the American Dream of homeownership into a financial nightmare," Cuomo said. "We will make it easier for families to buy and keep a home.
"This important initiative will protect consumers from being victimized by predatory lenders and ensure that these two government sponsored enterprises (GSEs) are held to the highest standard of conduct in the marketplace," added Cuomo.
The proposed ban would make it illegal for Fannie Mae and Freddie Mac to purchase loans originated through predatory practices, including loans with excessive fees, unreasonable prepayment penalties, or single premium credit life insurance.
In particular, the proposal would ban Fannie Mae and Freddie Mac from purchasing loans where the points and fees charged the borrower exceed 5 percent of the mortgage amount.
Also banned would be the purchase of single-premium credit life insurance policies. These policies charge the borrower one single up-front premium for insurance that would pay the balance of the mortgage in the event of the borrower death at any time over the 15 or 30-year mortgage term. With the typical borrower only holding a mortgage for 5 to 7 years, the cost of these policies often is much greater than the benefit received by the consumer.
In addition, the proposal will make it illegal for Fannie Mae and Freddie Mac to purchase loans with unreasonable prepayment penalties, including penalties linked to prepayments due to borrower default.
Finally, the proposal would make it illegal for Fannie Mae and Freddie Mac to purchase loans from a subprime lender that has not demonstrated compliance with fair housing laws.
Fannie Mae and Freddie Mac are the nation's two largest investors in home mortgages. Their recent entry into the subprime market has raised concern that these market giants will reward predatory lending practices.
Assistant Secretary and Federal Housing Commissioner William Apgar today previewed the proposed legislation at the annual Conference of National People's Action, a grassroots advocacy organization, that is leading efforts in Chicago, New York, Buffalo, and Cleveland; and other cities across the nation to end abusive lending practices.
"The best way to cut-off predatory lenders is to cut off their funds," said Apgar. "This proposal will prevent predatory lenders from gaining a foothold in the nation's secondary market."
Cuomo will formally announce his call for legislation Wednesday at the inaugural meeting of HUD's Task Force on Predatory Lending. Cuomo announced last month that he was convening a national task force and holding hearings to determine how to completely eliminate the nightmare of predatory lending.
In recent testimony before the Senate Appropriations Committee, 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 public hearings in at least four cities to recommend strategies to combat predatory lending.
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. HUD estimates that subprime loan volume has grown from $20 billion in 1993 to more than $150 billion in 1998.
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; Diane Casey, America's Community Bankers, Kwesi Mfume, NAACP; Steve Kest of ACORN; Peter Skillern of the Community Reinvestment Coalition of North Carolina; John Taylor of the National Community Reinvestment Coalition; Gale 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.