Analysis of Subprime Lending in New York Released at Forum
HUD, TREASURY & SENATOR SCHUMER HOLD THIRD OF FIVE FORUMS NATIONWIDE TO ADDRESS PREDATORY LENDING

NEW YORK - The U.S. Department of Housing and Urban Development, the Department of the Treasury and U.S. Senator Charles Schumer of New York today held the third of five joint regional forums to address predatory lending.

While expanded access to credit from both prime and subprime lenders has contributed to the highest homeownership rates in the nation's history, there is growing evidence that some lenders are engaging in predatory lending practices - excessive front-end fees, single premium credit life insurance, and exorbitant prepayment penalties - that make homeownership much more costly for families that can least afford it.

With an almost six-fold increase in securities backed by subprime mortgages since 1993 and much greater Wall Street involvement in the subprime market, the topic of today's HUD-Treasury forum was "Funding Sources for Predatory Lending."

HUD Secretary Andrew Cuomo said: "The explosion in subprime lending has both an upside and a down. It has contributed to the highest homeownership rate in the nation's history. But it has also seen some unsavory subprime lenders defrauding and fleecing untold numbers of homeowners - many of them elderly, minority and low-income - by loading them down with debt, stripping them of equity, transforming the dream of homeownership into a nightmare. Wall Street could play a leading role in insuring that subprime lending does not become synonymous with predatory lending. We will shortly recommend to Congress legislation to separate the wheat from the chaff, the good from the bad, the subprime from the predatory lenders who victimize us all."

Treasury Secretary Lawrence Summers said: "We must not let the abusive practices of some lenders undo the enormous progress that families have made thus far. Abusive practices should have no place in the subprime market, or any other market."

Schumer said: "Subprime lending has made the American Dream of homeownership a reality for many Americans to whom that door would otherwise be closed, but subprime lenders who engage in predatory lending are hijacking the American Dream. And minorities - who are far too frequently denied loans by conventional banks - are most at risk to predatory practices. Last month, I released a report showing that blacks are twice as likely to be rejected for a mortgage from a conventional bank than whites and that a black loan applicant with income greater than $60,000 is more likely to be turned down for bank loan than a white applicant with income less than $40,000. Predatory lenders have stepped into the vacuum in these neighborhoods left by conventional banks and I have introduced legislation to crack down on this practice. This report has been sent to every bank in New York and I challenge them to take action to correct these intolerable inequities."

Personal testimony about specific instances of predatory lending in New York was offered at the forum. Joint HUD-Treasury forums on predatory lending already have been held in Atlanta and Los Angeles. Additional joint forums will be held in Chicago and Baltimore.

At the forum, HUD released a study - Unequal Burden in New York: Income and Racial Disparities in Subprime Lending - that analyzed 1998 data reported under the Home Mortgage Disclosure Act (HMDA) and documented the growth of the subprime market nationally. Subprime mortgage originations totaled some $35 billion in 1994, less than 5 percent of all originations that year. By 1999, there were some $160 billion in subprime mortgages, more than doubling the subprime share of the mortgage market to 13 percent.

The HUD report also found an almost six-fold increase in securities backed by subprime mortgages - from $11 billion in 1994 to $60 billion in 1999 - and indicated that, in 1999, the top eight Wall Street underwriters of subprime securities accounted for three-fourths of all issuances.

The report's analysis of HMDA data for New York reflected national trends.

• From 1993 to 1998, the number of subprime refinancing loans increased by about 350 percent in New York.

• Subprime loans are over three times more likely in low-income neighborhoods(53 percent) than in high-income ones (15 percent).

• Subprime loans are over four times more likely in black neighborhoods (60 percent) than in white ones (13 percent).

• Homeowners in upper-income black areas of New York are over twice as likely as homeowners in middle-income white areas to have subprime loans.

• Two-thirds of low-income black borrowers (67 percent) in the New York metropolitan area rely upon subprime loans compared to slightly more than a quarter of low-income white borrowers (26 percent).

The HUD study focused on home refinancing loans, which account for nearly 80 percent of subprime loans. Subprime lending involves providing credit to borrowers with past credit problems, who cannot qualify for the conventional prime market.

Subprime lending can help to expand access to credit for more Americans. However, some lenders may engage in predatory or abusive lending practices that can hit homebuyers with excessive mortgage fees, interest rates, penalties and pre-paid credit life insurance charges, loan flipping, or home improvement scams that can raise the cost of home ownership for families.

Later this summer, following the conclusion of the five joint HUD-Treasury hearings, Secretary Cuomo and Secretary Summers will issue a joint report with recommendations on how to address these problems. At the hearing today were some of the 28 members of the HUD-Treasury Task Force on Predatory Lending, comprised of housing experts, lenders, elected officials, bankers and consumer advocates as well as other national experts and participants from the region.

HUD and Treasury will:

• Assess the relationship between the availability of prime loans and the growth of subprime lending in different types of neighborhoods, including low-income and minority neighborhoods.

• Review existing state and local initiative to curb subprime lending and assess the merits of alternative strategies, including federal initiatives, to end predatory lending.

The Task Force On Predatory Lending includes Detroit Mayor Dennis Archer; Eric Belsky of Harvard University's Joint Center for Housing; Diane Casey of America's Community Bankers; Gale Cincotta of the National Training Institute-Chicago; Boise Mayor Brent Coles; Chicago Mayor Richard Daley; Tom Downs of the National Association of Home Builders; Martin Eakes of the Self-Help Credit Union; Debby Goldberg of the Center for Community Change; Roy Green of the American Association of Retired People; Los Angeles City Attorney James Hahn; Wade Henderson of the Leadership Conference of Civil Rights; James B. Hubbard of the National Economic Commission; Judy Kennedy of the National Association of Affordable Housing Lenders; Steve Kest of ACORN; Robert Lottstein of the National Association of Mortgage Brokers; Fe Morales Marks of Fannie Mae Corporation; Kwesi Mfume of the NAACP; Craig Nickerson of Freddie Mac Corporation; Baltimore Mayor Martin O'Malley; Joseph Piggs of American Bankers Association; Vincent Quayle of the St. Ambrose Housing Aid Center; Paul Reid of the Mortgage Bankers Association; Margo Saunders of the National Consumer Law Center; Peter Skillern of the Community Reinvestment Coalition of North Carolina; Ken Strong of the South East Community Development Corporation; Patricia Sturdevant of National Association of Consumer Advocates; John Taylor of the National Community Reinvestment Coalition; Karen Thomas of Independent Community Bankers of America; Frank Torres of Consumers Union; Denver Mayor Wellington Webb; Raul Yzaguirre of National Council of La Raza; and Jeffrey Zeltzer of National Home Equity Mortgage Association.