Secretary Cuomo�s Remarks
New York City
Predatory Lending Forum
May 12, 2000
Let me welcome you all here today. It's my pleasure to be in New York today. For me, it's being home. I've been in Washington for seven years, had a great opportunity to go all across the country. But the more you see the rest of the country, the more you see the old adage is correct; there's no place like New York and it truly is good to be here.
It's a pleasure to be here with Senator Schumer, who is doing a phenomenal job as the United States Senator for New York and for the nation. This issue, predatory lending, that we're addressing today, he has stepped up to the plate, as is his way, and shown great leadership and has a bill in Congress now that would go a long way to resolving this problem.
It's also been my pleasure to work with him on a number of issues, from guns to housing issues to banking issues, and, hopefully, we'll have the same level of success with this issue that we've had in the past.
It's also my pleasure to introduce Assistant Secretary Baer from the Department of Treasury. The Department of Housing and Urban Development, and Treasury are co-convenors of this Predatory Lending Task Force. We're having hearings across the country, and our goal is to have a report to Congress done by mid-June, and submitted, and then for Congressional action, which we hope to have this week -- this year. We had hoped to have it this week, but...(Laughter)
SENATOR SCHUMER: That won't happen.
SECRETARY CUOMO: That won't happen. This year, we'll be lucky.
Predatory lending: This is truly a recent phenomenon. When you look at the numbers, this problem just didn't exist six years ago. In some ways, we're a victim of our own success. This is a great, great economic success in this nation, in some ways so great that we have created opportunities for people who seek to prey on other people and other people's economic success. People have more equity in their homes than they had last year or two years ago or three years ago. And there are people who would look to steal that equity.
We cannot confuse predatory lending with any bona fide lending practices. We are not talking about bona fide companies. We're talking about people who engage in unscrupulous business activities, period. And no bona fide company anywhere in the housing or finance industry would defend any of these practices. These truly take people who are vulnerable and victimize them. They prey on seniors, they prey on those with lower incomes, and they victimize them.
There are a number of questions that we are pursuing. Number one, why did people have to go to the subprime market to begin with? Why couldn't they get conventional financing, which would have had them doing business with a bank which has regulations in place, which has an entire infrastructure of checks and balances? Why were people turned away by the conventional banks?
And all too often, you see a frightening racial correlation with the disapproval of conventional loans. The easy answer is: Well, it's not that they were turned away because they were minorities, they're turned away because they were low income.
Even if you discount for the low income, even when you calibrate the income, you still have a higher rate of minorities being turned down. Why?
A second line of inquiry is, once you go to subprime lenders -- that is not in and of itself a bad thing; as a matter of fact, in and of itself, that is a good thing because some prime lenders are bringing lending and credit to people who were closed out of the conventional market, and that's a good thing.
But within these subprime lenders, as there are no regulations here and there is no transparency here, you have bottom feeders and you have predators. They are just unscrupulous businessmen. They may as well be on a corner in Manhattan with -- with a cardboard box, a shell -- three shells, and a pea, because it is a shell game. And instead of moving a pea on a box, they talk about balloon payments and adjustable rate mortgages and term life insurance, and what would you rather have, would you rather have a fixed rate or would you rather have a balloon payment in seven years at six percent? Or, forget that, how about I give you an adjustable rate mortgage at one and half percent and you give me a sliding scale percent of your equity?
These are fast talkers who are dealing with vulnerable people. At the end of the day, you lift the shell, the pea is not there, the person losses their home. Those are the practices that we are talking about.
They are not the bona fide subprime lenders, they are not the bona fide conventional lenders. These are just unscrupulous businessmen. The specific issue today is: Where are they getting the money to start their businesses, and who is buying the mortgages from them?
When you look at the explosion in these subprime lenders, and the numbers have gone up tenfold, Wall Street is capitalizing many of these firms, and Wall Street is buying many of the mortgages. The amount of money that Wall Street has in this areas has gone from about $11 billion to about $83 billion in about six years.
So Wall Street has invested heavily in this area. I believe they don't know who they're investing in. They don't know when they're investing in a home equity mortgage company or a debt consolidation company or a finance company, what their actual business practices are. They should.
Look before you loan. Just because the economy is strong and there's a lot of capital and people are looking for places to invest, don't invest in a finance company unless you know what their practices actually are. Just because they're turning back a big dividend doesn't mean it's a place where you should have your money. These companies are turning back high rates of return. That's not enough for a Wall Street company.
The question should be why? What are they doing? That's what we want to pursue today.
The last point is that home ownership is at its all time high in this nation. That is a great success story. Why has that happened? Because consumer confidence is high. There's a direct correlation between consumer confidence and home buying. We want to make sure consumer confidence stays strong. Every legitimate business in this industry wants to make sure consumer confidence stays strong. That's what Paul Reed in the MBA wants, that's what the National Association of Home Builders wants, that's what all the bankers want. They want consumer confidence high.
There is zero tolerance by anyone in the industry for any of these unscrupulous practices. We will have no part of it. The housing industry is going to work until it is the safest transaction for any consumer anywhere. That's our goal.
And no one sanctions these activities. We just need to find out what they are, raise them up, and then end them once and for all.
Let me turn it over to Senator Schumer.
Thank you for the invitation to come to New York, Senator. Thank you for the invitation to have this hearing here on this very important aspect. Thank you for your leadership in putting in the legislation which has already been instructive to the process. I look forward to working with you over the next few weeks on this issue and bringing this to a productive close, as well as the many other projects we're working on together.
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