1999 Best Practices
Success Stories

Program Name:			Subprime Lender Practices Investigation
Program Focus:			Fair Housing
Geographic Area:			Mid-Atlantic
State:			DC
City:			Washington

Executive Summary
The growing trend of predatory lending in the booming subprime mortgage lending market has inspired Housing and Urban Development Secretary Andrew Cuomo to convene a national task force and hold hearings to determine how to "eliminate the nightmare of predatory lending from the American dream of homeownership."

Various offices at the Department of Housing and Urban Development (HUD) in Washington, including the Office of General Counsel, Office of Fair Housing and Equal Opportunity, and Office of Housing, are coordinating with the Department of Justice and the Fair Trade Commission to investigate potential violations of national fair lending laws.

Several ongoing investigations focus on the alleged discriminatory practices of a large subprime lending institution toward certain borrowers and applicants. The interagency task force hopes that the investigations will ultimately serve to discourage discriminatory and illegal practices in the lending industry. Evidence indicates that the vast majority of mortgage fraud and predatory lending activities – including excessive fees, provision of credit life insurance and prepayment penalties – occur 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.

The coordination of government resources across department and agency lines helps to minimize potential redundancy during the investigations and maximize efficiency in identifying violations. Four cities will serve as test sites for the investigation and public hearings. 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 them.

At press time, the investigations had not yet produced any convictions but Peter Race, Assistant General Counsel of Program Compliance at HUD anticipates that a federal court settlement will result. The greatest challenge, according to Race, is coordinating the efforts of several agencies, each responsible for administering different federal laws. "With coordinated teamwork and a determined focus on the task of building a case to be presented in the federal courts, I am very confident that we will succeed," Race said.

On April 10, 2000, the Mid Atlantic Office co-sponsored a "Challenging Predatory Lending Conference" with The Reinvestment Fund and the New Jersey Institute for Social Justice. The conference was an outreach and education venue to educate housing professionals from the region about how to identify predatory lending. Attendees learned how to differentiate predatory from legitimate subprime lending, how to avoid predatory lending, and what sorts of activities related to fighting unfair lending practices are going on around the country. With more than 180 housing professionals in attendance, the conference was a huge success.

"The real success," said Race, "is setting a precedent for investigating and enforcing fair housing laws effectively, which will ultimately empower minority and low-income communities to stand up and fight for equal treatment."

Partners: The HUD Office of General Counsel, HUD Office of Fair Housing and Equal Opportunity, HUD Office of Housing, the Department of Justice and the Fair Trade Commission

Financing: Various Funding Sources

Point of Contact:

John Kennedy, Phone: 202-708-2203