COMMUNITY DEVELOPMENT AND HOUSING COMMITTEE

SUPPORT FOR DIRECT ACTION BY LOCALITIES AND
FEDERAL LEGISLATION THAT REDUCE PREDATORY LENDING

WHEREAS, many cities and communities have experienced a ten-fold increase in the number of subprime loans since 1993 according to a recently published report by the Department of Housing and Urban Development; and

WHEREAS, several federal regulators and others recognize that a subset of subprime lenders engage in predatory lending, which includes unscrupulous lending practices involving misleading marketing and high pressure lending tactics, excessive fees, exorbitant interest rates, and hidden loan terms; and

WHEREAS, these lending practices strip hard-earned equity from homeowners, including senior citizens, putting them at risk of foreclosure and damaging their credit ratings; and

WHEREAS, the increase in foreclosed and vacant homes leads to decreasing property values for neighboring homeowners, increased crime activity, and threatens neighborhood blight; and

WHEREAS, regulatory oversight and examination of the institutions engaged in these activities has been at best inadequate; and

WHEREAS, several federal regulatory agencies, the Department of Housing and Urban Development, Fannie Mae and Freddie Mac are discussing ways to curb predatory lending practices throughout the country; and

WHEREAS, some cities, such as Chicago have begun to directly attack predatory lending by refraining from doing business with financial institutions or if their affiliates engage in predatory lending; and

WHEREAS, several U.S. Representatives and Senators have introduced legislation to curb predatory lending throughout the country,

NOW, THEREFORE, BE IT RESOLVED, that we, the United States Conference of Mayors, urge member cities to look at appropriate options for direct action by city governments to reduce predatory lending and

BE IT FURTHER RESOLVED, that the USCM support federal regulation and legislation that:

• Requires that loans with high points and fees or high Annual Percentage Rates are prohibited from including predatory practices such as basing the loans on collateral instead of ability to pay, including high prepayment penalties, some balloon payments, financing single-premium credit life insurance, negative amortization, refinancing a loan within two years without demonstrable benefit to the borrower, and making payments directly to home improvement contractors who do shoddy or no work at all;

• Requires financial institutions, including mortgage companies that primarily make these loans, to undergo examinations that specifically seek out evidence of high cost loans with predatory practices;

• Imposes additional reporting standards on lenders, including requiring them to report specific loan terms and disclose whether they are charging homeowners with high fees and interest rates that put them at risk of foreclosure;

• Modifies CRA regulations to ensure that lenders do not receive CRA credit for purchasing and originating high-cost predatory loans; and

Does not allow Government Sponsored Enterprises (GSE) such Fannie Mae and Freddie Mac to receive positive credit for purchasing loans with predatory characteristics.