Friday, May 2, 2008



Recent news stories In conjunction with the “mortgage meltdown” give the false impression that awareness of predatory lending is something new, It’s not.

For more than a decade, various federal agencies and congressmen have attempted to put a lid on mortgage-market predatory lending, But all attempts to pass legislation to Stop the practice have failed.

In June 1997, the Federal Reserve Board held hearings to assess the Home Ownership and Equity Protection Act’s effectiveness in combating abusive lending practices. At those hearings, consumer advocates reported continued abusive practices in connection with home-equity loans, They expressed concern that, as the total number of subprime loans increases, abusive loans will continue to increase in absolute numbers.

During the hearings, mortgage industry representatives acknowledged that abusive practices occur, but they asserted that such practices were not widespread in the national mortgage market.

In July 1998, as a result of the 1997 hearings, the Board of Governors of the Federal Reserve System, along with HUD, issued a joint report to Congress titled “Concerning Reform to the Truth in Lending Act and the Real Estate Settlement Procedures Act.”

Regulatory Action

The joint report addressed loan-flipping, credit insurance, ensuring consumer rights in foreclosures and consumer education and counseling — issues that focus on preventing and helping those who may be victims of predatory lending to fight foreclosure actions.

Two months after the 1998 HUD-Fed report to Congress was issued, the need for federal legislation to fight predatory lending was emphasized by Margot Saunders, who at that time was managing attorney for the National Consumer Law Center.

On Sept. 16, 1998, Saunders testified before the Subcommittee on Housing and Community Opportunity and Financial Institutions and the Consumer Credit House Committee on Banking and Financial Services regarding the rewrite of TILA (the Truth In Lending Act) and RESPA (the Real Estate Procedures Act).

In her testimony, she stated:
“It is clear that the current system is not working. Too many homeowners are losing their homes to foreclosure every year, and too many more are paying more than they should or they can afford for their home.”

She added that a tripling of the foreclosure rate in 17 years was an indication that the mortgage marketplace is working against the maintenance of homeownership.

According to its Web site, the Department of Housing and Urban Development has been fighting predatory lending since the spring of 1999 through research, regulation, consumer education and enforcement actions against lenders, appraisers, real estate brokers and other companies and individuals that have victimized homebuyers.

In “lay 1999, President Bill Clinton and Vice President AI Gore proposed legislation that addressed a number of financial industry issues. This May 4, 1999, proposed legislation included five basic principals, one of which was preventing fraud and abusive practices.

That same year, a federal government interagency task force on predatory lending held public forums in Atlanta, Baltimore, Los Angeles and New York. This task force included personnel from the U.S. Attorney’s Office, state attorneys’ offices, the Maryland Department of Labor and Licensing, the Maryland House of Delegates, Baltimore city government, the HUD Office of Inspector General, Civil Justice Inc., Fannie Mae, the Enterprise Foundation, the Mortgage Bankers Association, the Maryland Bankers Association, the Realtor’s Association, the Maryland Consumer Rights Coalition, AARP, the offices of Sens. Paul Sarbanes and Barbara Mikulski, both Democrats from Maryland, and numerous local housing organizations, banks and appraisers.

On July 15,2000, HUD and the Department of the Treasury issued a 121-page report titled “Curbing Predatory Home Mortgage Lending: A Joint Report” It included numerous recommendations to Congress for legislative and regulatory action to combat predatory lending, while maintaining access to credit for low- and moderate-income borrowers.

The report also addressed loan-flipping, “packing” excessive fees into the loan and lending without regard to the borrower’s ability to repay and outright fraud and abuse.

After the HUD-Treasury report was issued, a HUD representative said some policy changes were made by the agency, But according to the Federal Reserve Board, household mortgage debt increased from $4.8 trillion in 2000 to $10.3 trillion by the third quarter of 2007.

On April 12, 2000, Rep. John LaFalce, D-N. Y., introduced H.R. 4250. Co-sponsored by 18 House members and popularly known as the LaFalce-Sarbanes Predatory Lending Bill, it was designed to amend the Truth in Lending Act guidelines governing certain credit transactions secured by the consumer’s principal dwelling.

Too Late

The guidelines recommended: (1) the annual percentage rate of interest that shall be taken into account, (2) total points and fees incumbent upon the consumer at closing and (3) the criteria defining a high-cost mortgage lender as creditor.

The bill was referred 10 the Subcommittee on Financial Institutions and Consumer Credit, where it died. According 10 LaFalce, there was no hope with a Republican-controlled Congress of committee hearings or a vote on the floor of the House or Senate.

Bills with the same title — Predatory Lending Consumer Protection Act of 2000 — were introduced in the 107th Congress (H.R. 1051 and S. 2438) and the 108th congressional session (S. 1928) by Rep, LaFalce and Sen. Sarbanes along with numerous Democratic co-sponsors. All the bills died in committee.

The Mortgage Reform and Anti-Predatory Lending Act of2007 (H.R. 3915) was passed by the House on Oct. 27 with 100% support by Democrats while opposed by 67% of Republicans. The bill is now in the Senate Committee on Banking, Housing and Urban Affairs.

This latest bill may be a case of closing the barn door after the horses have escaped. Something could have been done a decade ago to stop the current mortgage meltdown. But then, those who engaged in predatory lending in the mortgage markets would not have been able to build wealth on the backs of those pursuing the American dream of homeownership.

Foodman is a Miami-based CPA and forensic accountant who has worked as an expert in federal tax cases.