Here's some details about what really went on in the subprime lending market (from the HUD study)
Hint: It has nothing to do with the CRA in fact some of it may violate the CRA because it involves "reverse-redlining" i.e. targeting vulnerable groups for predatory practices which is also a form of discrimination. Note also how the study specifically says that the rates and fees were totally unrelated to the actual credit risk of the borrowers involved based on objective criteria. This was *not* a market distorted by government regulation. It was a market with rampant fraud. http://www.hud.gov/utilities/intercept.cfm?/library/bookshelf12/pressrel/treasrpt.pdf ----------------------------------------------------snip Predatory lenders often target people that are "house rich but cash poor," usually the elderly. Elderly homeowners are likely to have built up significant equity in their homes, the values of which may have appreciated substantially over time. Some elderly homeowners living on fixed incomes need cash for medical and other expenses, but lack an adequate understanding of the complexities of financial transactions, the usual cost of home repairs, or their own credit-worthiness. Some elderly are widows who may have little or no experience with finances prior to the death of a spouse. In addition, some elderly borrowers suffer from medical problems, diminished faculties, and isolation that impair their ability to understand loan terms and/or make them especially vulnerable to aggressive sales tactics. Frequently unable to perform household repairs, some elderly appear to be specifically targeted by predatory lenders engaged in home improvement scams. Because of these particular vulnerabilities, predatory lenders may charge these homeowners rates that do not correspond to their levels of risk, or convince them to take out loans that are larger than necessary or inappropriate for their needs. What is the Problem? In some low-income and minority communities, especially where competition is limited, predatory lenders may make loans with interest rates and fees significantly higher than the prevailing market rates, unrelated to the credit risk posed by the borrower. Some consumer advocates allege that these predatory lenders are engaged in "steering" – the practice of directing consumers to high rate/high cost loans based simply on their race or economic status and their lack of information, rather than based on their credit histories or credit risks. Some targeted predatory lending may violate the fair lending laws, which prohibit discrimination on the basis of, inter alia, race, gender, national origin, and, in the case of the Equal Credit Opportunity Act, age. Testimony at the forums strongly indicates that many predatory lenders may have engaged in reverse redlining, or targeting abusive practices to protected groups. There is also some evidence that predatory lenders may charge different fees based on race or gender. One highly publicized case, Delta, involved allegations that African-American women were being charged more than other white borrowers with similar credit histories. The Department of Justice, HUD, and the FTC, in March 2000, entered a consent decree with Delta Funding Corporation, under the Fair Housing Act and the Equal Credit Opportunity Act, for charging higher fees to African American females than charged to similar white males. The consent decree also addressed claims that Delta had violated RESPA for allowing unreasonable broker fees on loans, and the HOEPA, for engaging in asset-based lending. United States v. Delta Funding Corporation, CV00-1872, (E.D. N.Y. March 20, 2000) -- "To be or not to be. That's not really a question." _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
