Testimony of the Assistant Secretary for Housing
Federal Housing Commissioner
before the House Committee on Banking
and Financial Services
May 24, 2000
Good Morning Chairman Leach,
Congressman LaFalce and members of the Committee. My name is
William Apgar, and I am the Assistant Secretary for Housing/Federal
Housing Commissioner at the United States Department of Housing
and Urban Development (HUD). On behalf of HUD Secretary Andrew
Cuomo, I want to thank you for the opportunity to testify today
on what HUD believes to be widespread consumer mistreatment commonly
termed "predatory lending."
Predatory lending practices vary
from one community to the next, operating on the fringes of the
burgeoning subprime lending market. Predatory practices take
many forms, including overcharging consumers with illegitimate
fees, employing bait-and-switch tactics, aggressive sales solicitation
and targeting of low-income, minority and elderly homeowners,
racial steering to high rate lenders and home improvement scams.
Predatory lenders target untold numbers of the most vulnerable
homeowners - focusing on the elderly, minorities, and low-income
families, loading them down with debt, and stripping them of
equity. In a growing number of cases, these predatory loan terms
are too much to bear and, as a result, the family loses its home
While we don't have enough detailed
data on mortgage costs and terms to precisely estimate the growth
and current extent of predatory lending, there can be little
doubt that these practices are on the rise. This is the consistent
report of state consumer affairs organizations, housing counseling
agencies, legal services organizations, and others who work with
low- and moderate-income homeowners on a daily basis. The most
dramatic evidence of the growth of predatory practices is the
wave of foreclosures now coming out of the subprime market. These
foreclosures not only ruin the financial future of individual
families, they threaten to destabilize entire communities. In
short, for millions of low- and moderate-income families, minorities,
seniors, and others not well served by the primary market place,
predatory lending threatens to turn the American dream of homeownership
into an American nightmare.
HUD/TREASURY TASK FORCE
Recognizing the growing problem
of predatory lending in many communities, HUD Secretary Andrew
Cuomo joined forces with Treasury Secretary Lawrence Summers
in early April to form a Joint Task Force on Predatory Lending.
The Task Force was made up of representatives of consumer, civil
rights, community groups, industry groups and state and local
officials. At HUD, I co-chair the Task Force with our General
Counsel Gail Laster. Our goal in establishing the Task Force
was to ask the Task Force members to share with us their knowledge
of predatory lending practices, their views on the extent and
forms of the problem in their communities and throughout the
nation, and their proposed solutions. We also asked the Task
Force to help us identify recognized experts and identify individuals
who have been victimized by predatory practices, as well as the
best available literature on the topic. This quick start enabled
us to hold to our ambitious schedule to develop a set of proposals
to present to Congress in June.
Between April 26th and tomorrow,
May 25th, we will have held public forums in five cities including
Atlanta, Los Angeles, New York, Baltimore and Chicago. Soon after
the forums conclude, we will be presenting two reports: The first
will summarize the testimony from each of the five hearings and
the second will present our recommendations to the Congress.
And while I can't tell you what those final recommendations will
be yet, I can tell you what we have learned about the problem
TESTIMONY OF VICTIMS
In each of our five public forums,
we have focused on a different aspect of predatory lending. The
Atlanta forum examined issues of racial targeting, while the
Los Angeles forum looked at how predatory lending issues affect
the elderly. In New York, we heard about the sources of funding
for predatory lending; and in Baltimore we focused on other key,
non-lender players such as appraisers and brokers. Finally, tomorrow
in Chicago, we will be learning more about state and local initiatives
to curb predatory lending practices.
At each forum, HUD and Treasury
officials have heard from the victims of predatory lending. More
powerful than any statistics or analysis, these victims told
how they were drawn into making a bad loan, and in most instances
how they had lost their homes and their life savings to the predators.
Here are a few examples of what we heard:
Irene Eichel, a 62 year old woman from Calabasas,
CA., told the Task Force of her experience with a reverse mortgage.
Ms. Eichel paid cash for her home in 1986. In 1994, Ms. Eichel
contacted a subprime lender about obtaining a $30,000 loan for
home improvements caused by the earthquake. She obtained a reverse
mortgage at what she understood to be 13% interest. The loan
did not require Ms. Eichel to make any monthly payments of principal
and interest. Unbeknownst to her, however, the loan terms also
changed the method of calculating interest after four years,
granting the note holder a 55 percent equity stake in her home
after four years.
When Ms. Eichel sold her home
six years later, the lender took $126,800 - more than half of
the equity in her home. Ms. Eichel did not realize that the loan
provisions would give the lender a large share of the equity.
Because of the small proceeds Ms. Eichel received from the sale
of her home due to this provision, she was forced to cancel the
purchase of a new home and now lives in a studio apartment.
Lucinda Ewing, a 70 year old African-American woman,
told the Atlanta panel of how she lost the equity in her home
and incurred significant debt as a result of successive high
cost refinances. Ms. Ewing purchased her home in 1989 for $70,000,
which included a purchase money mortgage of $30,000. Soon after,
Ms. Ewing began receiving mail offers to refinance her mortgage
to receive cash. Over the next few years, Ms. Ewing refinanced
her home mortgage four times, with four different subprime lenders.
With each refinance, Ms. Ewing paid substantial additional loan
fees and twice she paid significant broker fees.
Ms. Ewing originally contacted
the last lender after receiving a mail advertisement for a VA
loan. When Ms. Ewing went to closing, she learned that she was
not receiving a VA guaranteed loan, but instead a $97,600, high
interest rate mortgage with a balloon payment. Thinking that
it was too late to reconsider, Ms. Ewing signed the closing papers.
At the time of her testimony, Ms. Ewing was $5,000 behind in
the mortgage payments, and she had already received an notice
of intent to foreclose from the lender.
Gail Floyd, a homeowner from Philadelphia, PA.,
told us about her experience with predatory lending. When Ms.
Floyd made the decision to change from oil to gas heating, she
contacted a company from the yellow pages to perform the work.
This contractor informed Ms. Floyd that the work would cost $2,500.
Ms. Floyd had $1,000, but needed to finance the additional $1,500.
At that time, Ms. Floyd had a
first mortgage for $17,000 at 9 ½% and a second mortgage
for $8,400 at 11%. Her monthly payment was only $143. When Ms.
Floyd tried to obtain the $1,500 loan for the home improvement
costs, she was told that she could not obtain a loan for that
low an amount. Instead, a subprime lender refinanced her conventional
first and second mortgages and combined this amount with other
unsecured debt, resulting in a new mortgage for $33,600. The
loan, financed at 12%, included excessive fees and prepaid credit
THE GROWING SUBPRIME MARKET
Not all predatory practices are
confined to the conventional subprime market. Indeed, it is well
documented how scam artists have abused FHA and VA borrowers,
as well as hosts of programs operated at the state and local
level. Even so, the recent rapid rise of subprime lending appears
to have provided predatory lenders with a fertile ground for
their abusive practices.
By providing loans to borrowers
who do not meet the credit standards for borrowers in the prime
market, subprime lending can and does serve a critical role in
the Nation's economy. These borrowers may have blemishes in their
credit record, insufficient credit history or non-traditional
credit sources. Through the subprime loan market, they can buy
a new home, improve their existing home, or refinance their mortgage
to increase their cash on hand.
But there are two sides to this
story. Since many players in the subprime market are not federally
regulated, subprime lending is a fertile ground for predatory
activities, such as excessive fees, the imposition of single
premium credit life insurance and prepayment penalties that provide
no countervailing benefit to the borrower.
A recent HUD report entitled
Unequal Burden: Income and Racial Disparity in Subprime Lending
in America revealed that subprime lending has grown at an unprecedented
rate over the past several years. In fact, from 1993 to 1998,
the number of subprime refinance loans increased ten-fold. In
1993, there were 80,000 loans reported under HMDA - the Home
Mortgage Disclosure Act - which HUD identified as originating
with subprime lenders. By 1998, there were more than 790,000
loans which HUD identified as subprime. Over the same period,
there was a seven-fold increase in the dollar volume of subprime
loans, from $20 billion to $150 billion. HUD's report also revealed
that a disproportionate percentage of subprime loans are made
in low and very-low income neighborhoods and in African-American
communities. In fact, subprime loans are three times more likely
in low-income neighborhoods than in high-income neighborhoods
and five times more likely in African-American than in white
neighborhoods. Race appears to be a critical issue, since subprime
lending is twice as prevalent in high-income African-American
neighborhoods as it is in low-income white communities.
THE EXPLOSION OF FORECLOSURES
The most compelling evidence
that subprime lending has become a fertile ground for predatory
practices is the current, disproportionate percentage of subprime
loan foreclosures. In a pioneering analysis entitled Preying
on Neighborhoods: Subprime Mortgage Lenders and Chicagoland Foreclosures,
the National Training and Information Center (NTIC) recently
examined foreclosure trends for the period 1993 to 1998. The
NTIC study found that between 1993 and 1998, foreclosures nearly
doubled, with subprime lenders accounting for a large share of
this increase. In particular, subprime lenders and servicers
foreclosed on only 30 loans in the Chicago region in 1993, or
1.3 percent of all loan foreclosures that year. In contrast,
foreclosures on subprime loans increased by more than 40 times
to 1,417 in 1998, accounting for some 35.7 percent of total foreclosures
in Chicago in that year.
Building on the NTIC Study, Debbie
Gruenstein and Christopher Herbert of Abt Associates examined
foreclosures in Atlanta for the period 1996 to 1999. This study
found that while the overall volume of foreclosures in Atlanta
declined by 7 percent over that period, the volume of foreclosure
actions initiated by subprime lenders grew by 232 percent. In
Atlanta, the overall share of foreclosures attributable to subprime
lending increased from 5 percent in 1996 to 16 percent in 1999.
Today, the subprime share of foreclosures (16 percent) is larger
than the subprime share of originations (9 percent). Abt also
found that the subprime share of foreclosures is highest in lower-income
and predominantly minority neighborhoods.
A HUD report released last week
at the hearing in Baltimore confirmed that foreclosures of subprime
loans have emerged as a major problem confronting urban neighborhoods.
Working cooperatively with the St. Ambrose Housing Center and
the Circuit Court of Baltimore City, HUD examined all petitions
to initiate foreclosure actions in Baltimore for the three month
period of January to March 2000 and compared these results with
available HMDA data on mortgage originations. The study reveals
that while subprime loans made up only 33 percent of the 1998
market share for loans in low-income Baltimore neighborhoods,
by early 2000, subprime lenders accounted for 50 percent of mortgages
being foreclosed upon in those areas. In Baltimore's African-American
neighborhoods, subprime lending accounted for almost 60 percent
of all foreclosures but only 42 percent of all loans. Moreover,
many subprime loans were in foreclosure only months after they
were originated. For Baltimore, the mean lag between the loan
origination and the date that the foreclosure petition was filed
was only 1.8 years for subprime loans.
These local studies mirror the
national findings presented at the New York Forum held on May
12, 2000 by the HUD/Treasury Task Force. Based on extensive analyses
of reports filed with the Securities and Exchange Commission,
Alan M. White and Cathy Lesser Mansfield examined the default
and foreclosure experience of 16 large subprime lenders. White
and Mansfield estimated that for these subprime lenders, total
defaults for subprime loans in the 4th Quarter of 1999 were three
times as high as total defaults for all mortgages. White and
Mansfield observe that these default rates imply that at the
end of 1999, more than 72,000 families with subprime loans are
in or near foreclosure--an alarming number when you consider
that these loses only reflect the activities of 16 large subprime
lenders who hold fewer than half of all subprime loans.
THE MANY FACES OF PREDATORY
So the evidence is clear: as
subprime lending grows, foreclosures grow and so too presumably
do the predatory practices which lead to them. We have more work
to do in identifying exactly how predatory lenders operate throughout
the country, and how specific predatory practices set homeowners
up for failure. Even so, based on the testimony of victims at
our forums and our research, we do have an extensive list of
many of the common practices occurring today.
In July, 1998, HUD and the Board of Governors of the Federal
Reserve System carefully reviewed the Real Estate Settlement
Procedures Act (RESPA) and the Truth in Lending Act (TILA) to
determine, among other things, if these laws provided adequate
protection against abusive lending practices. In their resulting
report to Congress, the agencies stated that while abusive practices
can take many forms, there are two major categories: (1) blatantly
fraudulent or deceptive practices that involve unlawful acts,
and (2) various techniques used to manipulate borrowers into
exorbitantly priced or simply unaffordable loans.
The first type of abusive practices,
blatant fraud or unlawful acts of deception, include: (1) forging
signatures or obtaining signatures on blank documents; (2) falsifying
loan applicants' income or the appraised value of the property;
(3) overcharging consumers with illegitimate fees; (4) selling
credit life or disability insurance to consumers who do not qualify
for the insurance, or writing policies for amounts that exceed
the consumers' indebtedness; (5) fraudulently conveying title
in the property to third parties to facilitate the diversion
of loan proceeds; and (6) employing bait-and-switch tactics.
The second type of abusive practices
is often more difficult to identify. It includes various manipulative
techniques that cause consumers to enter into abusive loans,
including: (1) aggressive sales solicitation and targeting of
low-income, minority and elderly homeowners; (2) racial steering
to high rate lenders; (3) undue pressure to refinance unsecured
debt or second mortgages into a new, high-cost first mortgage;
and (4) home improvement scams.
Often the predatory nature of
these practices is only clear from looking both at the practices
themselves and the resulting loans. For example, while sales
of subprime loans to minorities within a particular neighborhood
may not in itself be an abusive or illegal practice, it may become
so when minority areas are specially targeted by lenders. Lenders,
mortgage brokers and home improvement contractors may utilize
high-pressure sales tactics that result in loans with excessive
closing costs or unexpected balloon payments.
Abuses in the first category
can be devastating to consumers and, based on consumer complaints,
are far too prevalent. For the most part, these abuses involve
acts that are already illegal under existing state laws, which
should be vigorously enforced. The second category of abuses
can be equally devastating, but are not necessarily illegal except
where unlawful discrimination is involved. Accordingly, this
second category of abuses demands special attention from the
public and from state and national legislators and policymakers.
There are many techniques used
to manipulate borrowers into exorbitantly priced or simply unaffordable
loans. These aggressive or deceptive techniques may result in
a loan with one or more onerous features -- such as an excessive
interest rate, disadvantageous balloon payment, or unjustified
lump sum credit insurance. These manipulative practices include:
Aggressive Solicitation and
Targeting. The practice
of offering high-priced mortgage loans to "house-rich but
cash-poor" consumers is often referred to as "reverse
redlining" - predatory lenders specifically target and aggressively
solicit minority, elderly and low-income homeowners who have
traditionally been denied access to mainstream sources of credit.
Because competition in these markets is limited, these lenders
are able to make loans with interest rates and fees significantly
higher than the prevailing market rates, unrelated to the credit
risk posed by the borrower.
Racial Steering to High Rate
Lenders. It has been
alleged by some organizations that some subprime lenders are
steering a substantial number of consumers to high rate/high
cost creditors based simply on their race or economic status
and lack of information, rather than based on their credit histories.
Several groups believe that a significant proportion of these
consumers are eligible for prime loans, or higher quality subprime
loans, but are not aware of their ability to obtain prime or
better subprime credit. The fact that many mainstream lenders
have historically underserved these borrowers and communities,
frequently referring prospective borrowers from minority neighborhoods
to subprime affiliates, exacerbates this problem.
Undue Pressure to Refinance
First Mortgages. Although
consumers may qualify for an affordable second mortgage, predatory
lenders will pressure them to borrow a larger amount to pay off
the existing first mortgage, even though the interest rate on
the new loan exceeds the interest rate on the existing mortgage.
This allows the creditor to assess points and fees based on a
larger loan amount, as well as to charge a high interest rate
on a larger principal balance.
Home Improvement Scams. Creditors may work with disreputable
home improvement contractors that sell improvements financed
by a high rate/high cost loan. These arrangements often include
misrepresentations by the contractor regarding the condition
of the home, and overpriced, substandard, and/or frequently unfinished
work by the contractor. Borrowers nevertheless find themselves
separately liable on the mortgage to the creditor.
Loan Flipping. Loan "flipping" or "churning"
refers to efforts by creditors to repeatedly refinance home-secured
loans. Some creditors may extend credit knowing that the consumer
cannot afford the scheduled payments, or the large balloon payment
due at the end of the loan term. This practice guarantees that
the loan will have to be refinanced within a short time, providing
the creditor with additional income from origination fees on
each new loan. Loan flipping may provide little economic benefit
to the consumer in comparison with its cost, but it provides
significant income to the creditor, principally in points and
fees charged on the new loan, often coupled with penalties assessed
for prepaying the existing loan. Because the costs of the refinancing
are usually added to the loan amount, loan flipping typically
reduces the homeowner's equity in the property.
Structuring Loans Borrowers
Cannot Afford. Among
the clearest cases of abuse are loans made to persons living
on fixed incomes where the monthly loan payments approach or
even exceed that income; in some cases these borrowers might
have qualified for a reverse mortgage that assured them continued
possession of their homes for their lifetimes.
In addition to these manipulative
practices, the HUD/FED Report identified a series of common onerous
terms and other features often associated with predatory loans.
High Annual Interest Rates: Rates substantially above rates on
prime mortgages and not reasonably related to the level of risk.
Interest costs to some borrowers may exceed prime loan rates
by 10 percentage points or more.
Excessive Closing Costs: Consumer advocates have testified
that homeowners are stripped of their equity when high-priced
loans are repeatedly refinanced in conjunction with the charging
of high up-front fees that consumers cannot afford to pay at
closing and that are, therefore, added to the loan amount.
Balloon Payments: A loan may be structured with low monthly
payments that the homeowner can afford, but the payments are
too small to fully amortize the principal resulting in a balloon
payment at the end of the loan term. When faced with an unexpected
balloon payment, the consumer must refinance the loan (paying
additional fees and closing costs) or face possible default.
Negative Amortization: In some cases, consumers enter into
a loan unaware that the monthly payments do not even cover the
accrued interest, causing the principal loan balance to increase;
this is known as "negative amortization". Although
loans covered by the Home Ownership and Equity Protection Act
(HOEPA) are prohibited from having payment schedules that result
in negative amortization, some abusive loans may fall just below
the HOEPA coverage triggers.
Lump Sum Credit Insurance: Consumer advocates say that
because credit insurance is highly profitable, consumers are
frequently subjected to high-pressure sales tactics for this
product at or before the loan closing or the product is simply
added, with little opportunity for the consumer to comparison
shop or reflect on the decision. Consumer groups also express
concern about the practice of collecting the insurance premiums
for the entire loan term in advance. These premiums are commonly
added to the loan amount, increasing the total finance charges
paid by the consumer. If the loan is later refinanced or is paid
off before maturity, the entire premium will not have been earned,
but consumers may not know to seek a rebate, or may not know
how to do so.
INITIAL HUD RESPONSES
Creating the nation-wide Task
Force is not the only action HUD has taken this year to address
predatory lending. In response to a hearing held by Senator Barbara
Mikulski in March, 2000, HUD Secretary Andrew Cuomo joined Senator
Mikulski in launching a Baltimore Task Force to learn more about
the explosion of predatory lending abuses in Baltimore City.
Senator's Mikulski's hearing revealed that predatory practices
were being visited upon both subprime and FHA borrowers in low
and moderate-income Baltimore communities. The Task Force's goals
were to use Baltimore as a laboratory to gather information on
the cause and extent of mortgage scams and resulting foreclosures,
and develop recommendations that would benefit Baltimore and
serve as a model for FHA programmatic reform throughout the nation.
Evidence suggested that predators
were purchasing homes in Baltimore and reselling them with cosmetic
improvements at significantly inflated prices to first time homebuyers.
The homes were over-appraised, substantial settlement fees were
charged and the result was that these homebuyers were saddled
with inflated mortgage loans and loan payments.
As a first step, at the suggestion
of the Baltimore Task Force, FHA declared a 90-day moratorium
on foreclosures of FHA-insured loans in Baltimore City. This
gave HUD time to send a "SWAT Team" in to identify
fraud or predatory practices involved in FHA loans before they
foreclosed and to help as many homeowners as possible to avoid
foreclosure. HUD staff intensively reviewed case files for the
350 FHA borrowers in Baltimore that had been sent a notice of
intent to foreclose since January 1, 2000, and found evidence
of fraud or predatory lending in 50 - 60 cases. These cases will
be sent to the appropriate authorities, HUD's Inspector General
or U.S. or State Attorney Generals for review and possible further
The second focus of the "SWAT
Team" was to pursue an aggressive strategy to help defaulting
Baltimore homeowners avoid foreclosure. To do this, FHA attempted
to contact all borrowers with impending foreclosures to try to
put them into one of FHA's foreclosure avoidance actions. In
addition, FHA contacted the corresponding lender for each case
to ensure that they were properly evaluating borrowers and offering
appropriate foreclosure avoidance options.
We learned a great deal from
our work in Baltimore and, last week, we announced several new
FHA initiatives that will apply the lessons-learned to the rest
of the country. FHA's reforms to protect homeowners from predatory
lending focus on two main areas: (1) providing relief to those
FHA borrowers already in distress, especially those who have
been victimized by abusive lending practices; and, (2) strengthening
FHA endorsement and fraud detection procedures to prevent predatory
practices from occurring in the first place. The new reforms
build on existing FHA efforts to streamline operations and eliminate
abusive practices including Credit Watch, the Homebuyer Protection
Plan, and a variety of reforms of the FHA property disposition
program including the new Marketing and Management Contractors,
the Good Neighbor Sales Program, and the Teacher and Officer
Next Door Programs.
To assist victims of predatory
lending, FHA proposes to fund foreclosure avoidance counseling
for FHA homeowners in default. By expanding the availability
and improving the quality of counseling, FHA will help homeowners
make better use of currently available foreclosure prevention
tools such as mortgage modification, and partial loan forgiveness.
These efforts, commonly referred to by lenders as loss mitigation
tools, have one simple goal: to help FHA borrowers stay in their
For those FHA borrowers saddled
with inflated mortgages that stem from appraisal abuse, FHA will
direct mortgage lenders to write down the mortgage to a level
consistent with a fair market appraisal. In situations where
the lender refuses to honor this demand, FHA will intervene,
cancel the existing mortgage and refinance the mortgage at the
fair market value. In addition, FHA will instruct lenders to
issue a "credit repair" letter to ensure that the victim's
credit record is set straight.
Victim relief is just one important
step in addressing the problem of FHA foreclosures such as those
found in Baltimore: the next challenge is to stop predatory practices
from undermining the ability of FHA to promote housing opportunity.
Once again building on the initial results of the Baltimore laboratory,
FHA will institute an automated system to review the sales price
history of properties prior to approval of FHA insurance. This
new system will identify and stop abusive appraisal practices
before the loan is endorsed. In addition, FHA will form "SWAT
Teams", modeled on the Baltimore team, to target abusive
appraisal practices in areas with a high concentration of FHA
foreclosures. Finally, FHA is launching a new Appraisal Watch
System, similar to the Credit Watch system now targeted to lenders,
to identify appraisers with a record of faulty appraisals and
abusive practices, terminate them from FHA programs, and, if
appropriate, pursue legal action.
In some instances, the new initiatives
will be immediately available on a national basis. In other instances,
FHA will operate pilot efforts in Baltimore and other selected
"Hot Zone" cities (defined as those with excessively
high default and claim rates) to further test and refine the
concept before moving to national implementation. In all cases,
this new Fraud Protection Plan will better protect FHA, FHA borrowers
and the communities FHA serves from the harmful effects of the
rampant growth of predatory practices in the home finance market.
FURTHER ACTION IS NEEDED
Our work in Baltimore and the
public forums throughout the country have underscored for us
the urgency with which we must act. While the new initiatives
outlined above will increase protection and aid for FHA borrowers,
we have learned that predatory lending abuses extend far beyond
HUD's doors. Working together with the Department of Treasury,
we are preparing a set of recommendations on how the Federal
government can increase it's overall activities in eight key
areas. A consistent theme is how important it is to continue
to encourage responsible lenders to serve underserved markets,
including borrowers whose credit history is not perfect. While
our specific recommendations will not be finalized until mid-June,
we have identified eight key areas for further review:
1) We need better information
on high cost lending. It is simply unacceptable that this Committee
and others charged with oversight of the nation's housing finance
system and the public do not have readily available data on the
extent of high cost lending, predatory practices and foreclosures.
2) As the President stated last year, we need to expand the Home
Ownership Equity Protection Act (HOEPA) to cover a larger share
of high cost loans. HOEPA was passed before the rapid growth
of subprime lending. As a result, HOEPA triggers cover only a
very small share of high cost lending. The HOEPA triggers must
be reviewed in light of current lending trends.
3) Congress should consider restricting certain loan features
strongly associated with abusive lending practices. For example,
many lenders have already concluded that certain loan products,
including single premium credit life insurance, have no place
in today's market. Congress should consider placing similar restrictions
on all loans.
4) We must improve consumer protection by increasing enforcement
against fraudulent loan practices. In each of the four cities
we have been to to date, the HUD/Treasury Task Force learned
that local enforcement entities often struggle to keep up with
the growing mortgage fraud in their area.
5) We are reviewing whether creditors
making high cost loans should be required to take into account
the consumer's ability to repay - setting a consumer up for a
quick foreclosure has no place in today's market place.
6) Borrowers need more accurate
and meaningful disclosures on the pricing and terms of high cost
loans. Consumers are now faced with a bewildering array of documents
at closing. In the face of high pressure sales techniques and
new predatory lending scams, existing disclosures need a thorough
7) We are taking a careful look
at the role of the secondary housing market in purchasing or
securitizing predatory mortgages. We are examining what role
better due diligence may have in this regard.
8) We need to expand consumer education and counseling. The importance
of expanded education and counseling has been one consistent
theme of each of the HUD/Treasury forums. Last year, the Administration
requested $20 million for homeowner counseling, but Congress
only appropriated $15 million. This year the administration requests
$24 million for counseling. Congress should fully fund this request.
These are just some of the areas
the HUD/Treasury Task force are examining. I look forward to
sharing with you the final recommendations from our Task Force
next month. Thank you for this opportunity.
Content Archived: January 20, 2009