Predatory Lending Mocks American Dream
For nearly a year, a stealthy war has raged across the nation between housing activists and lenders over the issue of predatory lending. This is the ugly practice in which a handful of greedy and unscrupulous lenders shamelessly scam mostly the elderly, poor, and minority homeowners or prospective homebuyers. The lenders promise them quick cash, easy payments, and minimal paperwork to refinance or get a new home loan. In many cases the ink on the borrower's contract is barely dry when they discover that the lender has dumped hidden fees, an escalating interest rate, and an unyielding repayment schedule on them.
When unsuspecting homeowners miss a payment or two, the lender slaps a foreclosure notice on them. If, or more likely when, they don't pay they are rudely booted from homes in which they have lived for years. The lender quickly puts the house up for auction or direct sale on and makes a killing.
The drive to nail predatory lenders gained steam in October when Household International agreed to pay nearly $500 million to low income homeowners in 19 states and Washington D.C. to settle charges that it engaged in illicit lending and foreclosure practices. Housing activists won more victories when the Los Angeles City Council recently passed a tough ordinance that gives home buyers greater protection from lending home foreclosures by rip-off lenders. New York City, Oakland, and Philadelphia have also passed similar laws.
Though the Philadelphia ordinance was overturned by the state legislature, a handful of other states are currently considering tough laws against predatory lending. The Federal Reserve last year tightened disclosure rules on home loan costs and fees, but housing activists want Congress to pass legislation totally outlawing predatory lending.
While tough state and city laws send a strong signal that home lending discrimination won't be tolerated, they won't put these scam artists totally out of business. Lenders will still have the legal right to make loans to whomever they want and on whatever terms they pretty much want. They will continue to get away with the scam because many big banks still drag their feet in making more loans available to inner city residents who want to buy or refinance their homes.
In annual reports on mortgage lending discrimination, Greenlining, a San Francisco based public advocacy group, has blasted California's big banks for making an abysmally small number of conventional home loans to blacks and Latinos in Los Angeles. When the bankers are confronted with the paltry figures on inner city lending, they react with a mix of puzzlement, surprise, and knee-jerk outrage. They claim that the figures on lending discrimination are grossly misleading in that they ignore the number of government guaranteed loans and loans from non-profit lenders that minority home applicants receive. The bankers vehemently swear that they don't racially discriminate in making loans in minority communities.
While there is no evidence of deliberate racial bias by bankers in making loans, the Greenlining annual surveys make it clear that lenders can and must radically increase the amount of lending in inner city neighborhoods, actively work with housing activists and community groups to devise programs to help more black and Latino homebuyers purchase homes. Those banks that refuse to make loans in inner city neighborhoods or only make a token number of well-publicized loans to keep government regulators off their backs give the rip-off lenders the gaping opening they need to do their dirty work.
This virtually guarantees that many inner city neighborhoods remain filled with underserved renters stuck with badly lagging neighborhood services, inferior schools, a paucity of health services, and spiraling rates of crime and drug use. The housing shortfall also stunts business and commercial development in the area. Many retailers, supermarkets, and banks reflexively peg their decision to locate stores and branch offices in stable, middle-class residential areas.
The housing gap especially between blacks and whites is a long-standing national problem that has gotten worse. Far fewer blacks than whites are homeowners. But even this grossly understates the magnitude of the problem. According to a study by Harvard's Joint Center for Housing Studies, minority home owners pay far more of their income for affordable housing, and are far less able to find it than whites. In well-timed speeches and appearances, President Bush earlier this year pledged to black church and community groups that he would fight to end lending discrimination and to free up more funds for home loans to minorities. Cynics dismiss this a campaign ploy to bag more black voters, but the fact that Bush made lending and affordable housing an issue tells much about the magnitude of the housing crisis.
Politicians fondly boast that homeownership is the key to making the American dream a reality. Predatory lending makes a mockery of that dream.
Earl Ofari Hutchinson is an author and columnist. Visit his news and opinion website: www.thehutchinsonreport.com He is the author of The Crisis in Black and Black (Middle Passage Press).