[Congressional Record (Bound Edition), Volume 146 (2000), Part 4]
[Extensions of Remarks]
[Page 5537]
[From the U.S. Government Publishing Office, www.gpo.gov]


[[Page 5537]]


             CONGRESSIONAL RECORD 

                United States
                 of America



April 12, 2000




                          EXTENSIONS OF REMARKS

INTRODUCTION OF THE PREDATORY LENDING CONSUMER PROTECTION ACT OF 2000, 
                               H.R. 4250

                                 ______
                                 

                          HON. JOHN J. LaFALCE

                              of new york

                    in the house of representatives

                       Wednesday, April 12, 2000

  Mr. LaFALCE. Mr. Speaker, I am pleased to be joined this morning by 
my friend and Senate colleague, Senator Paul Sarbanes of Maryland, in 
introducing legislation to address the problem of abusive practices in 
high-cost mortgage refinancings, home equity loans and home repair 
loans.
  I would also like to take this opportunity to introduce a number of 
the representatives of national consumer, senior citizen, community and 
civil rights organizations that are with us today. Many have worked 
with us since we completed work on Financial Modernization last Fall to 
develop this legislation.
  The problem of so-called ``predatory'' lending has reached near 
epidemic proportions in recent years, robbing millions of American 
households of the equity in their homes and undermining the economic 
vitality of our neighborhoods.
  Our legislation, the ``Predatory Lending Consumer Protection Act,'' 
responds to widespread evidence that so-called ``subprime''--or high 
cost--lenders are systematically targeting homeowners with low incomes 
or damaged credit histories (subprime borrowers). These offers seek to 
trap borrowers in unaffordable debt, strip the equity from their home 
and, too often, put the home in foreclosure. ``Predatory'' loans tend 
to have a number of abusive practices in common: interest rates far 
above conventional loan rates; excessive fees and points, often hidden 
in the mortgage financing; up-front payment of credit insurance; 
balloon payments; frequent refinancings; huge prepayment penalties; 
arbitrary call provisions, and other practices.
  Predatory lending is somewhat akin to Justice Brennan's definition of 
``pornography'': it might be difficult to define, but you certainly 
know it when you see it. In my own district, for example, there is 
Florence McKnight, a 84-year-old Rochester widow who, while heavily 
sedated in a hospital bed, signed a $50,000 loan secured by her home 
for only $10,000 in new widows and other home repairs. Under the loan 
she would have to pay over $72,000 over 15 years, and still face a 
balloon payment of $40,000. Mrs. McKnight's home is now in foreclosure.
  There are many more examples. These include, for example--
  The West Virginia widow who had her mortgage refinanced seven times 
within 15 months, only to lose it in foreclosure.
  The disabled Portland, Oregon woman who was charged more than 30 
percent of the amount of her mortgage financing in fees and credit life 
insurance.
  The 68-year-old Chicago woman whose mortgage was refinanced three 
times in 5 years and ended up with monthly payments that exceed her 
income.
  These are not isolated examples. The problem of predatory lending has 
been the focus of recent statements by all the federal financial 
regulators. Comptroller of the Currency, Gerry Hawke; Director of the 
Office of Thrift Supervision, Ellen Seidman and the Chair of the 
Federal Deposit Insurance Corporation, Donna Tanoue, have all denounced 
these practices.
  Two weeks ago, Federal Reserve Board Alan Greenspan announce a task 
force to address predatory lending. Last week, HUD Secretary Cuomo 
organized working groups to come up with recommendations. Yesterday, 
Fannie Mae announced its own guidelines to exclude purchases of 
predatory loans, with Fannie's Chairman and CEO, Frank Rains, issuing a 
statement today supporting the need for legislation. Also today, 
Treasury Secretary Summers has issued a statement indicating his 
concerns about this problem and supporting our efforts.
  What exactly does our legislation do? Very briefly, the bill expands 
and fills the gaps in the 1994 Home Ownership and Equity Protection Act 
(HOEPA) that Congress enacted in response to the initial wave of 
abusive home equity loans ten years ago. HOEPA established an important 
framework for combating predatory practices, but it did not go far 
enough. The legislation strengthens and expands HOEPA protections in a 
number of ways:
  It lowers HOEPA's interest rate and total fee ``triggers'' to extend 
needed protections to greater numbers of high cost mortgage 
refinancings, home equity loans and home improvement loans.
  It expands HOEPA to restrict practices that facilitate mortgage 
``flipping'' and equity ``stripping''--restricting the financing of 
fees and points, prepayment penalties, single-premium credit insurance, 
balloon payments and call provisions.
  It prevents lenders from making loans without regard to the 
borrower's ability to repay the debt, encourages credit and debt 
counseling and requires new consumer warnings on the risks of high-cost 
secured borrowing.
  It encourages stronger enforcement of consumer protections by 
strengthening civil remedies and rescission rights and increasing 
statutory penalties for violations.
  The bill deals directly, and I believe effectively, with the primary 
abuses that encourage and facilitate such predatory practices as loan 
``flipping'' and equity ``stripping.'' By restricting the tools that 
make these practices profitable, and by enhancing private remedies and 
civil penalties to deter violations, we can prevent the American dream 
of home ownership from becoming a nightmare at the hands of predatory 
lenders.

                          ____________________