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There’s been plenty of talk lately about how predatory lending hurts minorities and the elderly. But so far, community and consumer groups pushing for new legislation and increased regulation of so-called subprime lenders in the mortgage lending industry have little to show for it. And that’s not likely to change anytime soon. Subprime lenders generally offer high-interest loans to borrowers with weak credit ratings. Many of the lending institutions are subsidiaries of the United States’ largest bank holding companies, including Citigroup and the Chase Manhattan Corp. So despite all the attention focused on the issue, most are on pretty solid ground. None of the five bills pending in Congress is anywhere near passage, and the industry has a staunch ally in Texas Republican Sen. Phil Gramm, who has blocked new legislation because of his belief that no new laws are needed to regulate companies providing loans to homeowners with flawed credit records. Furthermore, the only viable proposal being pushed by consumer groups — namely, that the Federal Reserve, the Office of the Comptroller of the Currency, and the Department of Housing and Urban Development crack down on abusive lending practices — is gaining little momentum. While there is growing support for increased regulation from the Federal Reserve, the banking lobby’s argument that increased regulation would result in less credit being extended to homeowners in low- to moderate-income neighborhoods — the very people who need it most — has persuaded key legislators to tread cautiously. The limited movement on the issue isn’t due to any shortage of effort or political might. The AARP, the most powerful interest group lobbying for tougher regulation of subprime lenders, put its weight behind a bill introduced by Sen. Paul Sarbanes, D-Md., in the Senate and Rep. John LaFalce, D-N.Y., in the House. Roy Green, a lobbyist for the AARP, says the group is putting pressure on the Federal Reserve to expand its regulatory authority under the Home Owners Equity Protection Act of 1994 to better regulate subprime lenders. “The most we can hope for is some kind of proactive stance by the Federal Reserve and other financial regulators,” says Green. “That’s where our best prospects of success are for the rest of this year.” Besides the AARP, community groups such as the National Community Reinvestment Coalition, the Association of Community Organizations for Reform Now, and the Inner City Press are turning up the heat on the Fed. In May, HUD and the Treasury Department released a report recommending that the Fed begin scrutinizing more closely the subprime market. That same month, the Fed was taken to task by a number of House Banking Committee members, including Committee Chairman James Leach, R-Iowa, and ranking minority member LaFalce during hearings on predatory lending. “If there is a problem out there, if Congress has given very strong authority to regulators and the Federal Reserve, are regulators and the Federal Reserve AWOL?” Leach asked at the hearings. This summer the Fed held its required periodic hearings on the effectiveness of the Home Owners Equity Protection Act, the law that authorizes the agency to impose some disclosure conditions and other limits on certain high-cost, home-secured loans. Rose Pianalto, a spokeswoman for the Fed, says that the agency is currently analyzing information gathered from the hearings — held in Charlotte, N.C.; Boston; Chicago; and San Francisco — and considering whether the agency can expand its regulation of subprime lenders under the act. In the next few months, the Fed is expected to report its findings and announce its decision on the issue, according to Pianalto. The Fed already has the authority to change some things. Currently, lenders are required to provide more information to the Fed on loans carrying an interest rate of 10 percent or more. The agency could broaden the number of loans it scrutinizes by demanding that loans carrying lower interests be subject to additional disclosures. The National Community Reinvestment Coalition is also pushing the Fed to use its authority under the Home Mortgage Disclosure Act of 1975 to collect data on annual percentage rates, monthly payments, and credit scores of borrowers in hopes of determining the prevalence of abusive lending practices. In a Sept. 12 letter to Federal Reserve Board Chairman Alan Greenspan, signed by 28 Democratic women representatives, Rep. Carolyn Maloney, D-N.Y., and Jan Schakowsky, D-Ill., urged the agency to implement recommendations from a HUD/Treasury report issued in 1999. The legislators favor a ban on loan flipping — or serial refinancing of homes to a borrower’s disadvantage — and restrictions on balloon payments, as well as lending to borrowers with no consideration for their ability to make loan payments. Wright Andrews Jr., a lobbyist for the National Home Equity Mortgage Association, says he suspects that mounting pressure on the Fed from Congress will spur the agency to propose changes to the Home Ownership Equity Protection Act regulations, as well as other laws. “That will get the heat off their back,” says Andrews. Still, Andrews says, “If you look at the existing laws, you would find that they cover existing abuses.” CONSUMER EDUCATION URGED The Fed, usually reluctant to interfere with the free market system, doesn’t appear to be ready — or willing — to take the reins on curbing predatory lending practices. “I wouldn’t say that we consider ourselves the lead [regulator] on this,” says Pianalto. At the May hearings, Fed Governor Edward Gramlich was skeptical of what the Fed can do to curb abusive lending practices under the Home Ownership Equity Protection Act, underscoring instead the importance of consumer education. “Frankly, the value of rules prohibiting [predatory lending] practices is uncertain,” Gramlich said. “Some occur even though they are already illegal, and others are harmful only in certain circumstances. The best solution in many cases may simply be stricter enforcement of current laws.” National Community Reinvestment Coalition lobbyist Christopher Morton says he feels doubtful that the Fed recommendations will go far enough. “If the federal regulatory agencies don’t act, it may give more impetus to Congress to force them to do so,” says Morton. “Ultimately, what’s needed is a strong statute that stands in the place of any tinkering of the regulatory side.” Matthew Lee, executive director of the Inner City Press/Community on the Move & Inner City Public Interest Law Center, is less hopeful. “With Senator Gramm chairing the banking committee, it is hard to believe that meaningful legislation will be passed.” Last month, Gramm delivered a major blow to consumer groups, indicating that he would not be in favor of addressing predatory lending again until the term is better defined and lawmakers can gauge how widespread abusive practices really are. “There’s nothing about predatory lending that sets it off from plain old fraud,” says Christi Harlan, a committee spokeswoman, adding that lately “there’s more noise than push” on the issue. Last week, Reps. Schakowsky and Maloney and 19 other women members petitioned HUD Secretary Andrew Cuomo to tighten regulation on payments made to mortgage brokers by lenders, to penalize fraudulent real estate brokers, and to take steps to curb abusive home-improvement loan practices. Meanwhile, industry groups are taking their own steps to combat the problem in hopes of staving off increased regulation. Robert Lotstein, a lobbyist for the National Association of Mortgage Brokers, says he would like the Fed, HUD, and state agencies to more aggressively enforce existing laws to weed out predatory lenders from the system. “It puts a black eye on the industry because there are a few bad actors,” he says. Lotstein says the National Association of Mortgage Brokers, together with the American Association for Residential Mortgage Regulators, is creating a registry for mortgage brokers that it plans to roll out in 2001. “The idea is to track bad actors through reporting,” says Lotstein. Jeffrey Zeltzer, executive director of the National Home Equity Mortgage Association, says his group plans to launch in October a national Internet and print campaign called Borrow Smart, which aims in part to educate consumers about the mortgage lending process. The AARP’s Green says he applauds the industry’s self-policing efforts, but adds, “We would like to see basic protections, so that it is not totally based on self-regulation.” The AARP is currently considering raising concerns with regulators over Citigroup’s proposed acquisition of the Associates First Capital Corp., a subprime lender. Under the Change in Bank Control Act, Citigroup will have to apply to the OCC for approval of the deal, which will be based on safety and soundness issues, says an OCC spokesperson. The National Community Reinvestment Coalition, Inner City Press, and Rep. Schakowsky all intend to file comment with the OCC, arguing for the merger to be blocked or for concessions and guarantees to be made. “We believe that [abusive lending practices] should definitely be a major consideration when addressing these issues,” Schakowsky says. Citigroup public affairs director Leah Johnson says her company is aware of the issues that community groups are raising about the $31.1 billion Associates deal. “We have a certain standard of operating,” says Johnson. “We will bring the business to our standards.” Consumer groups aren’t much comforted by that thought. Lee of Inner City Press believes that Associates would be much harder to litigate against in court if the merger is approved — given that it would be a subsidiary of a powerful banking behemoth such as Citigroup, which has former Treasury Secretary Robert Rubin as its chairman. Says Lee: “It’s much easier to go after a mom-and-pop stand than to go after the largest bank in the country that just hired the former head of the Treasury.”

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