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Predatory Lenders Still Seen Targeting Minorities
BOSTON - Growing scrutiny into subprime mortgages has failed to stop unscrupulous lending practices to blacks, Hispanics and other minority groups, U.S. Rep. Barney Frank said on Monday.
Frank, chairman of the Financial Services Committee, warned lenders that regulators would crack down on groups shuttling minorities into subprime loans designed for people with weak credit histories or low incomes.
"We are still seeing more blacks and Hispanics being pushed into subprime mortgages than they should be and that's where you'll see more regulation," the Massachusetts Democrat said in response to a question after a speech at Boston University.
More than 2 million subprime borrowers face higher mortgage costs and the possible loss of their homes if they cannot meet the payments. Studies have found that blacks and Hispanics were likely to be charged higher interest rates on subprime loans than whites with similar credit ratings.
Frank helped craft legislation to curb predatory practices aimed at minorities seeking home financing and has pushed for more oversight of lenders in the wake of losses tied to mortgage securities.
Calling the current U.S. economic downturn the worst in a decade, Frank said there was clear evidence that too little regulation can be damaging.
Innovation in products and practices must be fostered, but regulation is needed to stem potential abuses, he added.
"We've got to enhance the ability of regulatory entities to do their job and to pay them well," said the trained lawyer who has represented Massachusetts in Washington since 1981.
Frank also said it was wrong to turn owning a home into one of Americas' biggest dreams.
"I wish everyone in America earned enough money and had enough sense to own a home," Frank said, adding however that many people are pushed into improperly buying one instead of renting.
"Home ownership is a good thing but Americans also made a great mistake where home was equated to home ownership," Frank said.
Reporting by Svea Herbst-Bayliss, editing by Richard Chang
© 2008 Reuters
4 Comments so far
Show AllI turn the TV on every morning to watch the news and see where additional US taxpayer money is being spent to "solve" what is called the the "subprime mortgage crisis" (it actually goes far deeper than subprime mortgages).
The alleged solutions will only make the problem worse and the next "crisis" bigger than this one because nobody has addressed the cause of the problem : financial industry deregulation.
Until the financial industry is re-regulated, US taxpayers will be bailing them out from one "crisis" after another, with each "crisis" worse than the previous one.
Andersdl, you're absolutely correct, and I'd add that it's the entire FIRE industry that has caused the problem: Finance, Insurance, and Real Estate. The more house-prices can get jacked up, the more money real estate brokers can make in commissions, the more money insurance companies can make in home-owner's insurance policies and private mortgage insurance, and the more money banks can make on interest income on higher loan balances. What we see here is corporate greed, pure and simple. And the bailouts that are proposed are actually just another shift of low-income taxpayer money into big corporate pockets. The whole damned thing is a scam for the corporations.
Barney Frank is also absolutely correct when he says that it's wrong to turn "owning a home" into America's biggest dream. That's the other part of the problem, and it isn't addressed anywhere; this is the first time I've seen an elected legislator say something like that.
Can Mr Franks please identify what exactly are those lenders doing that is unscrupulous. To make a statement without supporting evidence is absurd.
If Mr. Franks was truly looking out for the publics interest, he would specify exactly what sub-prime lenders are doing that is unscrupulous. The fact that some lenders may be offering these types of loans to minorities is not a crime. If persons are not able to fit within the lending guidelines of conforming lenders, then there are options and one of those is sub-prime lending. I guess the great fix Mr. Franks is suggesting is FHA loans. Interestingly, FHA loans are sub-prime loans. There difference between the two are as follows - although FHA guarantee loans have lower rates, borrowers are charged mortgage insurance and a monthly premium calculated on the amount of the loan. The charge is for the life of the loan. Interest rates on sub-prime loans are higher because mortgage insurance is calculated into the rate to help cover any risk. Either program, the borrower pays. By the way, if you think the default rate with FHA loan is any better than sub-prime loans then you are in for a reality check. The fact that Americans have lost jobs to oversea's markets, many due to our US companies either relocating or tranferring call centers overseas has had a serious impact on the working american. The fact that energy cost has skyrocketed because of ever climbing oil prices has affected every sector in the American way of living - food, gas, manufacturing, transportation of goods. All this means Americans are needing to dig deeper into their pockets just to make ends meet, day by day getting saddled with mounting debt. What do Americans have to fall back on, nothing - savings in our country is minus 2 percent. I wonder what Mr. Franks and his esteemed collegues will say and do when the bottom falls completely out from borrowers who have conforming loans. Its already beginning to happen. What will be their excuse(s)! From where I see it the people who were suppose to represent us in Washington have done a miserable job at keeping house. They let this happen!
If prices of real estate weren't racketed or artificially inflated by bankers/speculators/developers, and exposed to the ordinary dynamic of supply/demand, prices would come down to affordable levels.
Sure, some people borrowed more than they should have.
Nonethless, banks lent to people they should not have -- and prices are obviously artificially inflated.
Notice how this article frames the options:
(1) Get sub-primed or
(2) Rent
Either way, you must remain a serf -- god forbid that we tighten usury laws and fully expose the price of real estate to supply/demand dynamics, allowing it to settle to naturally affordable levels, rather than racketeered prices.