Ending predatory lending has become a morass of litigation, legislation, public hearings and, lately, conflicting reports.

Last week, just as the California Reinvestment Committee (CRC) lambasted the Federal Reserve Board for dragging its heels on stepping up regulatory enforcement to stop predatory lending, a new report revealed subprime purchase mortgage lending mirrors the general mortgage market in serving people by income, but not by race.

That could mean plans to tighten regulations to weed out predatory lenders needs sharper honing and more time to develop.

So-called predatory lending typically involves unscrupulous subprime lenders underwriting purchase and equity mortgages with easily-overlooked or poorly-disclosed small print, difficult-to understand terms and exorbitantly high costs, all of which make for loans that are tough to repay and that sometimes cost borrowers their homes.

Critics say the loans target older people, borrowers with lower incomes and minorities. Class action suits have begun to thwart some predatory lenders and state legislation has done the same, with mixed reviews.

Most agree, however, a broad-based federal solution is the best answer, but that's been a much slower process largely because current data gathering techniques makes it difficult to pinpoint where regulations need tightening.

Just before the last of four Federal Reserve hearings last week to determine how the Fed should stiffen regulations to combat predatory lending, CRC fired off a release that said the Fed wasn't moving fast enough.

Public hearings

"The Federal Reserve Board has just about rolled over and played dead on this issue," said Alan Fisher, Executive Director of CRC, a San Francisco, CA-based coalition of more than 200 non-profit and public agencies that advocated increased credit access for California's low-income communities.

"The Board has been silent on the devastating impacts predatory lenders are having on California's communities. Meanwhile the Federal Reserve and other federal regulators are allowing major banks and subprime lenders to hide behind technicalities while they hijack the homes of the elderly, immigrants and low income people who often spend a lifetime saving for the one and only asset they will ever have," according to Fisher.

CRC said crack downs are warranted not only on predatory lenders, but also big banks who own subprime lenders, underwriters and investment houses that provide financing for "this new predatory lending cottage industry."

The Fed explained after the final hearing in San Francisco on Sept. 7, that the hearings were specifically designed to gain information to help it strike a balance between retaining the availability of useful subprime loans (for those who can't otherwise buy a home or cash in on their equity) and getting tough on predatory lenders.

That could mean extending the Fed's authority beyond the scope of the Home Ownership Equity Protection Act of 1994, which requires extensive disclosures but only for loans with an annual percentage rate (APR) that exceeds the Treasury security rate by more than 10 percentage points or contains fees and points that exceed 8 percent of the total loan amount.

"It's a matter of figuring out what is unaffordable. What you may feel is unaffordable may not be for lots of people who want to purchase a home or to use their home as equity," said Kyung Cho-Miller, Fed counsel.

"If you say everyone should stop making these loans, you've still got issues of policing it and we've always seen many examples of deception and fraud in this type of market," she added saying the Fed's plan of attack likely won't reach fruition before 2001.

Subprime market

In any event, tightening regulations aimed at protecting some borrowers may miss the mark, according to "Credit Risk and Mortgage Lending: Who Uses Subprime and Why?" a yet to be published report from the Research Institute for Housing America, founded by the Mortgage Bankers Association of America.

"The overwhelming finding is that the market seems to be working," said Stephen Hornburg, RIHA's executive director.

"Contrary to the view that subprime lenders are targeting low-income borrowers disproportionately, the study shows subprime loan distribution mirrors the over all mortgage market. That was surprising to us," said Hornburg.

Presented at the Fed's fourth subprime public hearing in San Francisco last week, the new report also comes with one unexplained finding likely to further fuel subprime critics' existing arguments.

The survey said...

The first such report to incorporate actual credit histories and credit scores to determine who uses subprime loans found: