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Enacting Effective Consumer Finance Reform: A Federal Duty

(NNPA) - On April 29, the Senate Subcommittee on Financial Services and General Government Committee met to address the shortfalls of current federal programs intended to stem still-unfolding foreclosures. The session led by subcommittee chair, Illinois' Sen. Richard Durbin, and ranking member, Sen. Susan Collins of Maine, included candid testimony by Treasury Secretary Timothy Geithner.

After acknowledging how the housing crisis continues to affect millions of Americans, Secretary Geithner recounted the resources dedicated to a series of federal response programs before shifting the focus from government action to the private sector's inaction.

"I want to be clear", said Geithner, "that we do not believe servicers are doing enough to help homeowners – not doing enough to help them navigate the difficult and often frightening process of avoiding foreclosure."

Geithner continued, "We are troubled by reports that servicers have foreclosed on potentially eligible homeowners ... That they have lost documentation, or claimed to. That they are not responding to the needs of responsible and increasingly desperate homeowners."

New research from the National Community Reinvestment Coalition (NCRC), also released this week substantiates Geithner's claims. The report entitled Foreclosure in the Nation's Capital examined loans in the Washington, DC Metropolitan Statistical Area (MSA) that includes the District of Columbia, five Maryland counties, another 10 counties in Virginia and two in West Virginia. According to NCRC, this specific geographical area was chosen because it reflected the procession of foreclosures in other locales and additionally builds on earlier findings by numerous other organizations, including the Federal Reserve.

Citing the U.S. Congress Joint Economic Committee finding that $2.7 trillion of housing wealth was lost from 2007-2009, NCRC's study confirmed many of the same conclusions earlier reached by the Center for Responsible Lending: there are verifiable lending disparities, disproportionate impacts, and no objective criteria to explain these differences.

For example, NCRC found that in the metro DC area, lending patterns revealed that 70 percent of Latinos and 80 percent of African-Americans were more likely to receive a subprime loan. Secondly, African-American mortgage loans went to foreclosure more often than those held by Whites.

As early as 2006, CRL's own research determined that minorities were significantly more likely than whites to receive a high-cost, subprime loan even when credit scores were the same for both home purchase loans and refinance loans. Much of the disparity in lending was related to higher interest rates, pre-payment penalties and yield spread premiums - a fee lenders paid to mortgage brokers for selling high-cost loans.

Most importantly, CRL warned in this report that "We believe that evidence of disparate pricing for borrowers of color is likely a symptom of a larger set of issues in a market that has gained notoriety as a magnet for predatory lenders."

The irony is that all of these lending disparities occurred when federal laws have already been enacted to assure fair housing, fair lending, community reinvestment and more. So the logical question becomes, "What happened to enforcement?"

The unfortunate answer is that all too often, regulators relegated consumer concerns to those of private enterprise. In that process, all consumers, but especially consumers of color were hurt financially while lenders made record profits and bonuses.

Consumer financial reform should address these ills – not just for communities of color – but for everyone.

[Charlene Crowell is the Center for Responsible Lending's Communications Manager for State Policy and Outreach. She can be reached at: This e-mail address is being protected from spambots. You need JavaScript enabled to view it .]

 

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