Copyright 2002 The Washington Post


The Washington Post
May 2, 2002 Thursday
Final Edition
SECTION: FINANCIAL; Pg. E03

LENGTH: 725 words

HEADLINE: Bill Targets Predatory Mortgage Loans;
Report Finds Race Is a Factor for Borrowers' Costs

BYLINE: Sandra Fleishman, Washington Post Staff Writer

BODY:


New legislation to curb unscrupulous mortgage lending won't restrict consumer loan choices, Senate Banking Committee Chairman Paul S. Sarbanes (D-Md.) said yesterday at a news conference unveiling a proposal co-sponsored by 14 Senate Democrats.

Lender groups, though, say the disappearance of valuable loan alternatives would be an unintended consequence of Sarbanes's bill, which would increase the pool of loans deemed high-cost and expand federal consumer protections on those loans.

Because loans that the government labels high-cost carry additional compliance burdens and have a reputation as potentially abusive, lenders will choose not to make them, the groups say. They are making the same argument in 30-plus states and cities where similar proposals are under consideration. As evidence, they point to the District, where lawmakers overhauled legislation after lenders pulled out last year.

This difference of opinion is at the heart of the national debate over how to curb predatory lending -- loans with excessive fees, high interest rates, and terms that are targeted at borrowers who either don't understand or can't afford them. The borrowers frequently lose their houses to foreclosure.

Yesterday's news conference focused on the devastating effect that such loans have on minority and elderly borrowers, as well as on neighborhoods and cities.

Sarbanes's supporters also raised civil rights concerns over a study released at the conference that suggests that race, rather than income or credit risk, is the reason people get high-cost loans. The study's authors say that high-cost lenders are not adequately regulated and that banks in general are still not serving minority communities.

Concern about predatory loans has exploded as the number of high-cost, or subprime, loans has mushroomed in recent years. While legitimate subprime loans tailored to those with blemished credit are welcomed by Sarbanes and consumer and civil rights groups, those that ensnare people are not.

The American Financial Services Association, the national trade association for finance companies, reiterated in a statement yesterday that "additional restrictions" on high-cost loans "are not the answer."

That "won't deter the bad actors intent on breaking the law -- but could deter legitimate lenders now offering credit to needy borrowers," the AFSA said.

The AFSA, the Mortgage Bankers Association of America and other lending groups say increased consumer education, enforcement of existing laws on fraud and simplification of the mortgage process will protect vulnerable borrowers more than new laws would.

But more than a dozen civil rights, consumer and community groups, including the Leadership Conference on Civil Rights, the NAACP, the Consumer Federation of America and the U.S. Conference of Mayors, yesterday endorsed the bill and the need for federal legislation.

"Today predatory lending is one of the greatest threats to families working to achieve financial security," said Wade Henderson, executive director of the Leadership Conference on Civil Rights.

The proposed legislation "seeks to rein in those who prey on our communities like drug dealers, but who wear ties instead of gold necklaces," Richmond Mayor Rudolph C. McCollum Jr. said.

McCollum was among those who cited an underlying racial bias in high-cost lending, pointing to the new study, which showed a higher concentration of subprime loans to African American borrowers in Richmond at all income levels.

The study by the Center for Community Change, a housing advocacy group based in Washington, found that racial disparities in subprime lending exist in all regions and all cities and "counterintuitively, increase as minority homeowners' income increase."

The study also found that upper-income blacks are 1.29 times as likely to get a subprime loan as lower-income whites.

Said McCollum, "The study clearly shows that there's something going on here other than eligibility."

Baltimore was seventh in the country in disparities between upper-income blacks and lower-income whites, and the Washington metro area was 16th. Almost half of the upper-income blacks who took out loans in Baltimore received subprime loans, according to the study, while 37 percent of the upper-income blacks taking out loans in the Washington area got subprime loans.

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