Oppose Advantages for Predatory Lenders

Oppose Advantages for Predatory Lenders

Reps. Ney and Kanjorski have introduced a bill that claims to combat predatory lending, but in fact their bill would give advantages to unscrupulous lenders. The bill also would override state laws that have been successful in combating predatory lending while preserving credit for working families. For more details, click here to download our analysis. (PDF)

Sample Letter for Campaign

Subject: Oppose Ney-Kanjorski's H.R. 1295

Dear [ Decision Maker ] ,

As a citizen concerned about predatory lending, I am writing to express serious misgivings about a bill recently introduced by Reps. Ney and Kanjorski. H.R. 1295 is known as "The Responsible Lending Act," but the law would not facilitate responsible lending. Instead, it would allow predatory mortgage lending to continue harming families by stripping hard-earned equity and increasing foreclosures.

I am in favor of a law that puts the interests of homeowners ahead of irresponsible lending that drains home equity from vulnerable citizens. H.R. 1295 would allow many abusive practices to continue. It claims to offer greater protections but, in fact, many key provisions come with loopholes that will continue to permit wealth-stripping and lead to foreclosures.

For example, under H.R. 1295 unscrupulous lenders can drain a family's wealth by inserting exorbitant fees into the mortgage loan. They can repeatedly refinance the same mortgage until the borrower's equity is gone. They can prevent victims of predatory lending from protecting their homes against foreclosure after the lender has sold their loan.

H.R. 1182, a bill previously introduced by Reps. Miller, Watt and Frank, offers a better option for protecting homeowners. Their proposal is based on anti-predatory lending legislation already effective in several states, including North Carolina, the home of many of the nation's largest banks. Predatory lending has decreased dramatically in North Carolina while subprime lending continues to flourish. One study estimates that North Carolina citizens saved $100 million during the first year alone.

The Ney-Kanjorski bill ignores state laws that are working well in areas where the subprime mortgage market continues to flourish. Rather than encouraging responsible lending practices, H.R. 1295 would allow abusive lending to continue while providing no meaningful enforcement and overriding successful state laws.

This is a time when foreclosures are rising in many areas, families are struggling with debt, and abusive lending practices are harming some of our most vulnerable citizens. Please do the right thing by working to protect, not harm, the financial future of our nation's working families.

Sincerely,

Campaign Launched:
June 28, 2005


Background Information

H.R. 1295, the so-called Responsible Lending Act, threatens to roll back many of the protections that now exist to protect homeowners against predatory lending. The bill ignores many of the lending industry's current best practices, weakens existing federal law, and overrides state laws that have worked well. HR 1295:

  • rolls back the federal Home Ownership and Equity Protection Act
  • fails to provide protections against practices that strip wealth from homeowners, such as excessive points and fees, abusive loan flipping, and abusive prepayment penalties
  • weakens enforcement and remedies, and
  • provides for sweeping preemption of state laws.

Predatory lending, a term used to describe an abusive set of home lending practices that deprive homeowners of hard-earned equity, has been estimated to cost U.S. consumers $9.1 billion each year.

While many abusive practices have emerged in this sector, the single largest abuse is equity-stripping. Not satisfied with higher interest rates, abusive lenders strip equity by charging exorbitant fees, often equal to 5% or more of the loan amount (five times the typical fee on a competitive, prime loan). The problem for borrowers is that while they may refinance out from an interest rate that does not properly reflect their risk, they cannot recover fees. Instead, in almost every instance those fees are financed into the loan amount and are repaid from the borrower's equity when they refinance.

For more details, click here to download our analysis of HR 1295 (PDF), or read about the Seven Signs of Predatory Mortgage Lending.