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But when financial institutions do the same thing with predatory lending tactics - wiping out people's home equity and saddling them with enormous debt - we are often powerless to intervene. The time has come to end these practices. Predatory lending occurs in the so-called "subprime" market. This market is made up of those people whose credit histories make them unattractive to more traditional lenders. Subprime lenders do play an important role in extending credit to those who otherwise might not be able to borrow, and not all these lenders engage in predatory lending. However, some lenders rope people into exorbitantly expensive loans by preying on both their financial needs and lack of financial expertise. For instance, they convince people who have their homes paid off to get a home equity loan with a large balloon payment at the end. When the person finds they can't afford the final balloon payments they get another loan, and then another loan, in a process called "flipping." Retirees who owned their homes free and clear soon find they've lost all their equity and face foreclosure and homelessness. Sometimes lenders hide the true cost of the loan in other fees and insurance payments. Carol Mackey, of the Detroit area, testified July 26 before the Senate Banking Committee at my invitation. She told the Committee that the effective interest rate on her home equity loan was 44 percent and that she was ultimately going to have to pay $201,000 in interest on an $18,645 loan! That is predatory lending. I am supporting efforts to end these practices by:
The majority of subprime lenders do perform a valuable service in our national goal of encouraging homeownership. But those who would prey on our most vulnerable must know that we regard them as nothing but swindlers, and that we're going to find them and shut them down.
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