THE HOME EQUITY LOSS PREVENTION AND ECONOMIC RECOVERY ACT -- HON. MAXINE WATERS (Extensions of Remarks - September 25, 2001)

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HON. MAXINE WATERS OF CALIFORNIA IN THE HOUSE OF REPRESENTATIVES Tuesday, September 25, 2001

Ms. WATERS. Mr. Speaker, I rise to introduce legislation which I believe is critically necessary at this time. My bill, the ``Home Equity Loss Prevention and Economic Recovery Act'' or HELPER, will restore the tax deduction for personal interest, such as that on automobile loans and credit card debt. It will also eliminate the limitations on the deduction of student loan interest.

This legislation will help prevent the reprehensible practice of stripping home equity to pay nondeductible debt. I have been working on ways to stem predatory lending for years. These practices often end in families losing their homes. I decided to turn to the tax code to eviscerate this problem of predatory lending, known as home equity stripping.

Home equity loans have historically been the privilege of the middle class and wealthy, who generally have high credit ratings, income, and home equity. However, beginning in the 1980s, non-depository finance companies--lending institutions other than commercial banks, thrifts, and credit unions--began to provide home equity loans to lower-income communities, which were not served by mainstream lenders.

Persons in low-income communities typically have little disposable income, but may have substantial home equity as a result of paying down their mortgages or through the appreciation of their property values. This equity can secure sizable loans. While offering loans to low-income and minority communities can benefit these communities, predatory lending practices, which oftentimes use the borrowers' home as collateral, have milked the last drops of wealth from many of these neighborhoods, leading to increased poverty and public dependence.

When vulnerable persons incur substantial medical costs, suffer sudden loss of income, require credit consolidation, or need funds to maintain their homes, predatory lenders step in, offering loans secured by the borrower's equity. Unfortunately, predatory home equity lenders target the most vulnerable homeowners--the elderly and people in financial or personal crisis.

The primary selling tools of these loans is the need to consolidate debt on which the interest is not deductible into a home equity loan, so that the interest can be deducted. Individuals with car loans, credit card debt and certain student loans cannot deduct the interest paid on these loans from their taxes. Often, these individuals will strip equity from their homes and pay high fees in an effort to consolidate this debt into one loan on which the interest is deductible. Frequently, these transactions involve high fees which offset any tax benefit that may be realized. Furthermore, after a loan consolidation, many consumers will accrue additional credit card debt.

My bill will remove the greatest incentive for equity stripping by making the interest on personal loans deductible, meaning that people with car loans, credit card debt and student loans that fall outside of current parameters, will now be able to deduct the interest they pay for these loans. The deductibility of the interest will lower the cost of borrowing for individuals and will prevent many individuals from overextending themselves in an effort to reap tax benefits.

I have been working on this legislation for several months, but decided that now is the appropriate time, because it has the potential to provide much needed economic stimulus. People will keep more of their money with these deductions, and will not be encouraged to pay high fees and risk losing their homes. I think that the time is right to restore the deductibility of personal interest and I would urge my colleagues to support this legislation.
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