Just weeks after Consumers Union told the Feds to shut up and put up more protections against predatory subprime lending, the U.S. Department of Housing and Urban Development convened a national task force designed to end the practice.

Consumers Union likely had more immediate action in mind, but HUD Secretary Andrew Cuomo has promised to "eliminate the nightmare of predatory lending from the American dream of home ownership."

Legitimate sub-prime lenders offer loans to lower-income, more credit risky home owners. Because the risk is higher, the mortgage interest rate and other terms cost more than those paid by higher income customers with better credit records. The subprime loan industry's volume has grown from $20 billion in 1993 to more than $150 billion in 1998 and without such loans, riskier borrowers could not tap their equity at a time when there is so much to tap.

Subprime lenders generally do not make government-backed loans and often operate outside of the current federal regulatory structure. Some subprime lenders prey on unsuspecting, less sophisticated low-income borrowers by offering undisclosed, exorbitantly high loan costs and other tactics that cost some owners their homes.

The media, federal watchdogs and the mortgage industry have chronicled predatory lending cases, particularly the barrage of suits that drove an otherwise solvent First Alliance Corporation in Irvine, Calif. into bankruptcy.

After Federal Reserve Chairman Allan Greenspan's recent criticism of predatory lending, Consumers Union demanded the government stop dragging its feet on the issue.

"Congress knows predatory lending is a problem The Clinton administration knows this is a problem. Now the chairman of the Federal Reserve himself is saying this is a problem. So, when are we going to see laws, regulation, and enforcement to put a stop to it?" asked Frank Torres, legislative counsel for Consumers Union.

"When the Gramm-Leach-Bliley bill became law, the financial service industry promised that its customers would see better products and services. Yet some companies persist in trying to trap people with these rip-off loans by targeting specific neighborhoods and segments of the population. It's time for policy makers to turn their words into action to bring an end to this abusive practice once and for all," Torres added.

Cuomo says he'll use the authority of Fair Housing Act and the 1974 Real Estate Settlement Procedures Act (RESPA) to conduct public hearings, beginning in Baltimore, to recommend strategies to combat predatory lending, spawned by the same economy that has produced the highest home ownership rate in history.

RESPA mandates certain lending disclosures and bans lenders from charging unnecessarily high fees and fees for services not rendered among other safeguards to protect consumers against loan terms and practices that could cause them to lose money, credit worthiness or their homes.

RESPA allows HUD's secretary to prescribe regulations or recommend legislation to correct any problems and it gives the department subpoena power to question errant lenders.

HUD's Task Force On Predatory Lending will include representatives from the Mortgage Bankers Association, National Association of Home Builders, ACORN, Harvard University's Joint Center for Housing, and community housing leaders and major city mayors.

"Actions speak louder than words. Some companies persist in trying to trap people with these rip-off loans by targeting specific neighborhoods and segments of the population," said Torres.

Published: April 4, 2000

Use of this article without permission is a violation of federal copyright laws.

Broderick Perkins parlayed a career in old-school journalism into a contemporary digital news service that really hits home. The award-winning consumer journalist, originally from Wilmington, DE, is founder, publisher and executive editor of the bootstrap DeadlineNews Group, a Silicon Valley-based editorial content and consulting service specializing in residential real estate, consumer news and related editorial consulting services. The DeadlineNews Group includes the website, DeadlineNews.com, offering real estate editorial content and consulting services, and its back shop, the Deadline Newsroom, an open house on news that really hits home. Perkins obtained his formal journalism education from University of Delaware and a journalism boot camp, the Institute of Journalism Education at the University of California-Berkeley. He went on to 20 years of service as a daily newspaper journalist at the Wilmington, DE News Journal and San Jose, CA Mercury News. Perkins covered housing on the San Jose Mercury News reporting team which earned a General News Reporting Pulitzer Prize in 1989 for coverage of the Loma Prieta earthquake. He has also produced real estate, consumer and small business content for the Wall Street Journal, Los Angeles Times, RealtyTimes.com, Nolo.com, Better Homes and Gardens, the National Association of Realtors, Homestore/Move and Intuit/Quicken among more than three dozen publications. In addition to managing the DeadlineNews Group, Perkins most recently served as chief editorial consultant for Nolo's Essential Guide To Buying Your First Home, Nolo, and writes real estate television scripts for RealtyTimes.com.