Letter from Andrew Cuomo, Secretary of Housing and Urban Development

June 8, 2000

The Honorable Phil Gramm
Committee on Banking, Housing and
Urban Affairs
U.S. Senate
534 Dirksen Senate Office Building
Washington, D.C. 20510

Dear Chairman Gramm:

Thank you for your April 12 inquiry on the important subject of "predatory lending." You asked how HUD defines this term. Predatory lending is a generic term used to describe a variety of abusive mortgage lending practices, generally targeted at minority, low-income, or elderly borrowers. These loans commonly include features that financially burden borrowers with debts they cannot afford to repay, strip equity and in the worst cases, result in default and the loss of homeownership. Indications are that these types of abusive credit practices are on the rise. I am especially concerned that some of the nation's most vulnerable borrowers are being victimized by predatory lending practices that can turn the dream of homeownership into a nightmare. As a result, I have taken a number of steps to address this problem.

First, as an outgrowth from discussions with Sen. Mikulski, who expressed concerns about the abusive mortgage practices occurring in Baltimore and other cities, this past April I co-convened along with Treasury Department Secretary Summers a Joint Task Force on Predatory Lending. The HUD/Treasury Task Force consists of representatives from many of the leading industry, consumer, and community organizations, as well as state and local officials. Its mission has been to help us gather additional information about the nature and extent of these abuses and to provide an opportunity for the individual Task Force members to suggest possible solutions to combat predatory practices. To further inform this effort, between April 26 and May 25th, we held public forums in five cities: Atlanta, Los Angeles, New York, Baltimore, and Chicago. In June, Secretary Summers and I will presenting two reports to Congress. The first will summarize the testimony from each of the five forums and the second will present our findings and recommendations for needed actions. We will be sure to forward you a copy of each of these reports as soon as they are completed.

Second, I have directed the Federal Housing Administration ("FHA") to initiate steps to protect FHA borrowers and FHA resources from predatory lending. The FHA initiatives were based on the work of HUD's Baltimore Task Force on Predatory Lending, also formed at Sen. Mikulski's request. Announced on May 19, the new protections include: restructuring inflated mortgages, default counseling for FHA borrowers, denying FHA insurance to FHA homes that have been "flipped" at inflated prices, placing caps on the points and fees charged FHA borrowers, deploying special teams to pursue unscrupulous appraisers and lenders, removing appraisers involved with large numbers of foreclosures, and imposing tighter FHA down payment rules. In some instances, HUD's new Fraud Protection Plan will be immediately available on a national basis. In other instances, FHA will launch pilots in Baltimore and other selected "hot spot" cities - defined as those with excessively high default and claim rates - to further test and refine the concept before moving to national implementation.

You also asked for any data that we have on predatory lending. While we are continuing to gather information on this topic in connection with the work of the Task Force, I am happy to share with you a copy of a recently released HUD study -- Unequal Burden: Income and Racial Disparities in Subprime Lending in America. The study documents that the number of subprime home loans is skyrocketing in predominately African-American and low-income neighborhoods. Subprime lending can include predatory lending, when targeted to unwary borrowers orinvolving onerous terms and conditions.

I trust that we share a common interest in finding ways of maximizing credit access for families while avoiding predatory lending. I look forward to sharing with you the two reports that will be presented to Congress.


Andrew Cuomo