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Community Groups Urge Regulators to Act on Predatory Lending
By James Comtois and Brad Finkelstein
In order to hear the concerns and grievances of community groups in California about predatory lending practices, the Federal Reserve Board of Governors convened a hearing June 16 in San Francisco on home mortgage lending abuses. The California Reinvestment Coalition and its members were invited to testify on panels at the hearing, which took place at the Federal Reserve Bank of San Francisco.
"Our State's future economic success requires that every Californian have the chance to become a part of the financial mainstream," said State Treasurer Phil Angelides. "Unfair interest rates and deceptive loan practices hurt those who can least afford it. I urge the Federal Reserve to do its part to ensure that every Californian has an equal opportunity to achieve the dream of homeownership."
Some of the concerns addressed at the hearing included the fact that many borrowers in California were being sold loans based on a stated income (allegedly often inflated by the broker), with no documentation to show the borrowers are able to afford the loan. Also, borrowers were being sold loans with low initial rates that will drastically increase in the coming years, leaving unsuspecting borrowers unable to pay their mortgages.
Another concern addressed was about loans that were being sold to non-English speakers who didn't understand the documents they were allegedly pressured to sign for the loan, as well as minority borrowers being much more likely to get stuck with overpriced loans and seniors being targeted for equity-stripping scams.
At the hearing, the California Reinvestment Coalition and its members urged the Federal Reserve to include more overpriced loans within the protections of the Home Ownership and Equity Protection Act, the federal anti-predatory lending law, as well as restrict yield spread premiums (fees lenders pay brokers for charging consumers more for their mortgages) and prepayment penalty provisions that charge borrowers thousands of dollars for refinancing out of bad loans.
In addition, Coalition members suggested that the Federal Reserve protect consumers from unscrupulous lenders and brokers who take advantage of borrowers not fluent in English, expand Home Mortgage Disclosure Act reporting requirements, so more data are available to better detect areas of discrimination and require housing counseling before closing on any of the loans described above.
"Stronger federal protections for consumers are needed to address an explosion of 'nontraditional' loan products in the mortgage lending market," said Heidi Li, co-founder of Housing and Economic Rights Advocates in Oakland. "Legal and consumer advocates, along with housing counseling agencies, find these products are often aggressively and deceptively pushed by brokers and lenders onto unsuspecting consumers."
Kevin Stein, associate director of the California Reinvestment Coalition, said, "The mortgage market is broken, and we need the Federal Reserve to clamp down on predatory lending that unfairly targets people of color, the poor, seniors, immigrants, and their neighborhoods."
Panelists in attendance to talk about subprime and nontraditional mortgages included Bruce Fuller from World Savings, Paul Leonard from Center for Responsible Lending, Rick Lieber from IndyMac, Mr. Stein from the California Reinvestment Coalition, Michael Faust from American Pacific Mortgage, Lori Gay from Los Angeles Neighborhood Housing Services, George Hanzimanolis from Bankers First Mortgage and president-elect of the National Association of Mortgage Brokers, Ms. Li from Housing and Economic Rights Advocates and Judy Zeigler from Prudential California Realty.
The Fed held another hearing on July 11 in Atlanta. Harry Dinham, the new president of NAMB, said "Unfortunately, many industry critics have blamed all the problems that consumers face with the current shopping process, products offered and disclosure issues on the industry alone. In so doing, they simply ignore the vital role that government and consumers have throughout the loan origination process."
He reiterated NAMB's past calls for licensing of all originators, no matter whom they work for, and uniform fee disclosures.
"The truth is, all originator types - brokers, bankers, lenders, credit unions and other all receive direct compensation, indirect compensation or a combination of both. Unfortunately, only brokers disclose all fees and costs to the consumer. This must change," said Mr. Dinham.
Kate Crawford, chair of NAMB's Consumer Protection and Affordable Housing Committee, also testified, adding, "Unfortunately, the approved disclosure documents for rate, fees, costs and points can be confusing and overburdened with legalese.
"In addition, only mortgage brokers disclose all costs to the consumer. Until there is a uniform way to disclose costs and everyone is fully transparent about their fees it will continue to be difficult for consumers to comparison shop in a meaningful way."
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