WASHINGTON,
D.C. – U.S. Representatives Jan Schakowsky (D-IL) and Carolyn Maloney (D-NY)
today called on Housing and Urban Development (HUD) Secretary Andrew Cuomo
to take immediate action to protect consumers from predatory lenders.
Nineteen other women members of Congress signed the letter.
In
the letter, the members specifically called on the Secretary to:
-
tighten
regulations governing payments to mortgage brokers;
-
penalize
appraisal fraud in the FHA first time homebuyer program; and
-
eliminate
fraud in the Title 1 home improvement loan program.
Schakowsky
is the author of the Anti-Predatory Lending Act, a bill that sets national
standards and changes current law to protect consumers from predatory lending
practices. In addition, Schakowsky, Maloney, and others have recently
written to Chairman of the Federal Reserve Alan Greenspan urging him to
use his authority to combat this problem.
Below
is a copy of the letter
September
20, 2000
The
Honorable Andrew M. Cuomo
Secretary
Department
Of Housing and Urban Development
451
7th St SW
Washington,
D.C. 20410-1047
RE:
PREDATORY LENDING
Dear
Mr. Secretary:
You
have been a leader in the fight against predatory lending. With full
appreciation of your past efforts, we urge you to take additional, immediate
steps against this harmful practice.
-
Tighten
regulations governing payments to mortgage brokers.
Lenders
pay mortgage brokers additional compensation-yield spread premiums-where
mortgage brokers provide significant additional services to borrowers.
Of course, lenders pass the costs onto borrowers. Predatory mortgage
brokers, however, charge exorbitant yield spread premiums just for talking
borrowers into higher interest rates. In a settlement with Delta
Funding, HUD, along with the Federal Trade Commission and the Department
of Justice, required the lender to ensure that additional services were
actually provided in exchange for yield spread premiums before paying the
broker. The settlement also required the lender to disclose brokers
fees directly to borrowers. HUD should promulgate these excellent
rules for all mortgage lenders and brokers.
-
Penalize
appraisal fraud in the FHA first time homebuyer program.
Testimony
at the HUD/Treasury forums on predatory lending in Baltimore, New York
and Chicago revealed a disturbing pattern of fraudulent activity in the
FHA first time homebuyer program. Real estate brokers conspire with
or coerce appraisers to hide defects in homes and sell them at grossly
inflated prices. Many borrowers face foreclosures when they realize
that they are paying inflated prices and have to make necessary but expensive
repairs. To your credit, HUD is instituting a plan to identify and
stop individual fraudulent sales. However, there is no penalty on
fraudulent brokers for trying and they will continue to hurt those victims
that your plan can’t detect. Consequently, we urge you to also to
penalize predators and remove them from the system.
-
Eliminate
fraud in the Title 1 home improvement loan program.
Much
of predatory lending occurs with home improvement loans. Contractors
talk unsuspecting homeowners into home improvement loans, take payment,
and then do shoddy or no work. HUD could take four simple steps,
which would eliminate the fraudulent practices that currently exist in
the Title 1 home improvement program. It should: 1) Refuse to approve
lenders who do not accept responsibility for the misrepresentations or
misconduct of the contractors with whom they do business; 2) refuse to
approve lenders or dealers who utilize arbitration clauses in their contracts
which allow the lender to immediately foreclose on a disputed project but
require the borrower to proceed by way of arbitration (which leaves the
borrower without any meaningful recourse because contractors disappear);
3) require certification that the work has been completed satisfactorily
by an independent entity, unaffiliated with any lender or contractor, and
pay progress payments when the work is 33% finished, 66% finished, and
totally completed; 4) require dealers to demonstrate financial solvency
by posting reasonable performance bonds in an amount greater than the $25,000
now required.
Again,
we appreciate all of the hard work you have done against predatory lending.
We believe that these are important steps to continue that effort.
We look forward to continuing to work with you in this fight. |