- The Washington Times - Monday, August 28, 2000

The Senate banking committee chairman is refusing to consider legislation regarding so-called "predatory" lending until the agencies that regulate the problem define it more clearly.

The committee took regulatory agencies to task last week in a report that concludes agencies have not defined predatory lending. Staffers from the committee, chaired by Sen. Phil Gramm, Texas Republican, asked nine federal regulatory agencies to define predatory lending and contribute all data on the practice.

The ensuing report concluded, "It is difficult to understand how the regulators or Congress can formulate proposals to combat predatory lending when there is not clear understanding as to what it is."

Mr. Gramm said in a statement that at least five bills have been introduced in Congress to address predatory lending, but he concluded that regulatory agencies are, in fact, armed with anti-fraud statutes to combat abuses.

Abusive lending practices are typically confined to the subprime, or high-interest, home-loan market, and can include balloon payments, loan flipping, and prepayment penalties.

Illegitimate lenders are believed to target uneducated, minority and elderly borrowers. The problem has been highlighted in urban areas, including Washington, where a handful of borrowers have filed suit and the D.C. government has promised a crackdown.

"The chairman wanted to make sure that he had a good handle on what the problem is before the committee started dealing with this legislation," said Christi Harlan, a banking committee spokeswoman.

But William Apgar, assistant secretary at the Department of Housing and Urban Development, said action must be taken quickly to remedy the problem and splitting hairs over a definition could cost time.

"To spend time debating as to whether the problem exists … strikes me as not a helpful way of proceeding," he said. The committee's report points out that the scope of predatory lending practices is not known.

Mr. Apgar added that his agency had taken steps to define predatory lending in a joint report with the Department of the Treasury released in late June. The document also suggested remedies.

By way of definition, the report listed practices that could be considered abusive.

Other agencies, including the offices of Thrift Supervisor and Comptroller of the Currency and the Federal Reserve, declined to comment or referred to comments made in speeches.

Many of the nine agencies have conducted hearings and studies on predatory lending. The others queried by the banking committee include the Federal Deposit Insurance Corporation, National Credit Union Administration, Office of Federal Housing Enterprise Oversight, Department of Justice and Federal Trade Commission.

John Garza, a Rockville bankruptcy attorney who often sees the fallout from illegitimate home loans, said predatory loans are indeed hard to pin down.

"It's so hard to define predatory lending. What might be predatory in one case might not be predatory in another case," he said.

For instance, an upper-middle class couple might repeatedly refinance their house, with an adjustable-rate mortgage in the prime market.

By contrast, an elderly woman with a low monthly income might obtain a subprime loan to refinance her house without understanding the adjustable terms.

In both cases, refinancing is involved. But the other factors are more difficult to see on paper and, therefore, regulate, Mr. Garza said.

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