Copyright 2001 The Houston Chronicle Publishing Company The Houston Chronicle
July 29, 2001, Sunday 2 STAR EDITION
SECTION: BUSINESS; Pg. 8
LENGTH:
538 words
HEADLINE: Panel hears predatory lending tales
SOURCE:
Knight Ridder Tribune News
BYLINE: TONY PUGH
DATELINE: WASHINGTON
BODY: WASHINGTON - Heartbreaking tales of lost
homes, lost savings and unethical loan officers dominated Senate hearings last
week into unethical practices in the high-risk mortgage industry.
Four people told members of the Senate Banking Committee
that their own naivete allowed deceptive lenders to stick them with
high-interest loans, exorbitant fees, unnecessary insurance and discouraging
penalties for prepayment.
The practices, known as "predatory lending," typically target elderly, minority or
uneducated borrowers with tarnished credit histories.
Committee chairman Paul Sarbanes, D-Md., is preparing legislation to
curb unscrupulous lending and seeks to build support through hearings. "Nearly
every banking regulator has recognized this as an increasing problem," Sarbanes
said.
A report released this week by the Coalition for
Responsible Lending in Durham, N.C., a group of banking, religious and housing
officials, estimates that predatory loans cost U.S. borrowers an estimated $ 9.1
billion annually. The costs stem from lost home equity, higher-than-necessary
interest rates and foreclosures on loans that never should have been made.
Most of the problems occur among borrowers with poor
credit who pay higher interest rates because they pose a greater risk of
defaulting. Loans to these borrowers have increased sharply in recent years.
Millions of low-income people have obtained credit they might otherwise not have
received. At the same time, they've allowed for more exploitation.
In recent weeks, two of the nation's biggest providers of
such high-risk loans, Household Finance of Prospect Heights, Ill., and
CitiFinancial Credit Co., a unit of Citigroup of New York, have dropped one of
the most criticized products, unnecessary loan insurance.
The Federal Reserve Board also is considering expanding consumer
protections against unethical lenders.
Sen. Phil Gramm,
R-Texas, chairman of the committee until Democrats took over the Senate in June,
had declined to schedule hearings, saying predatory lending had not been legally
defined. He briefly attended Thursday's hearing, urging senators to act
cautiously on any legislative proposals that might keep ethical lenders from
serving high-risk borrowers. That would reduce their credit opportunities, he
said.
Borrowers who testified Thursday said they had
been exploited.
Carol Mackey, 63, of Rochester Hills,
Mich., said she'd sought a $ 20,000 home equity loan to pay off bills and make
some minor improvements to her condominium. Her mortgage balance was $ 74,000
with a 7.5 percent interest rate and monthly payments of $ 510. A loan officer
urged Mackey to refinance.
"Not being a financial whiz,
I relied on his expertise," Mackey testified.
Big
mistake. Her new mortgage is for $ 100,750 with a 12.8 percent interest rate and
monthly payments of $ 1,103. She ended up with $ 18,645 in cash to pay her
bills, plus points and other loan fees totaling $ 8,105.
Mary Podelco of Montgomery, W.Va., told senators she lost her home to
foreclosure after refinancing it several times.
Sen.
Chris Dodd, D-Conn., said she was the victim of a "financial mugging."
"It took longer. It was more subtle, but it was a
mugging," Dodd said.
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