Mr. Speaker, American families are hardworking, good people and deserve financial security. American families do not deserve to have their physical, emotional and financial security compromised by predatory lending practices engaged in by…
Mr. Speaker, American families are hardworking, good people and deserve financial security. American families do not deserve to have their physical, emotional and financial security compromised by predatory lending practices engaged in by the subprime mortgage industry.
Subprime mortgage lending includes a wide range of loan products. What these loans have in common is they are marketed to hardworking people made vulnerable by credit scores that disqualify them from traditional loans, or who have limited credit history, thereby limiting their borrowing power.
Subprime lending is associated with significantly higher levels of foreclosure than prime lending. Subprime lenders make excessive mortgage loans of up to $1 million, and often the borrower can obtain ``cash out'' refinancing. Additionally, subprime lenders offer 100 percent financing to those with poor or limited credit.
Subprime lenders are known for their forceful marketing techniques which have included ``stated income'' loans in which the borrower is not required to provide documentation. This places American families in danger of borrowing a substantially greater amount that what is reasonably affordable and places them in danger of being unable to meet their mortgage payments.
These predatory lending practices are forcing large numbers of American families into foreclosure. Said another way, American families are losing their homes, homes they worked hard for. They are enduring undue stress and emotional instability when confronted with this prospect.
In 2002, approximately 2.2 million American families who had borrowed money from a subprime lender had either lost their home to foreclosure or were thought to be in danger of foreclosure. The Center for Responsible Lending conducted a study in which they found that millions of American households will lose their homes and as much as $164 billion due to foreclosures in the subprime market.
In Ohio, my home State, Ohio leads the Nation in the rate of foreclosure.
Ohio's foreclosure rate is roughly three times the national rate, according to the Mortgage Bankers Association.
Cuyahoga County, which includes Cleveland, my hometown, had 11,000 foreclosures in 2005, more than triple the number a decade earlier. In Cleveland in 1995, local depositories held about 60 percent of the market share of mortgages. By 2005, that number dropped to 20 percent. What has happened to my city in the past decade is a story that is reflected nationwide.
Furthermore, foreclosure has a detrimental effect on the greater community. Neighborhoods with foreclosed properties are likely to experience declining property values. These lower property values and the corresponding decline in owner equity can contribute to additional incidents of foreclosure. Foreclosed homes are often left vacant for extended periods of time and can subsequently attract crime to neighborhoods.
I began my political career as a representative in the inner city. Later I became the mayor of Cleveland, and during my tenure, Cleveland became the first city to sign the Community Reinvestment Act agreement pursuant to the newly enacted CRA of 1977. The Community Reinvestment Act was passed to prevent lending institutions from withholding home loans or insurance from communities labeled as economically risky. The act was intended to expand credit and depository services to low- and middle-income communities.
The CRA extends and clarifies the longstanding expectation by hardworking Americans that financial institutions will serve the convenience and needs of their local communities. The CRA established a regulatory regime to monitor the lending, investment and services offered by banks in low- and moderate-income neighborhoods, and has resulted in significant benefits.
Lenders and community organizations have signed 428 CRA agreements totaling $4.1 trillion in reinvestment dollars between the CRA's enactment in 1977 and the beginning of 2005. The CRA has also facilitated a surge of home loans to low-income and minority households.
Despite these positive gains, significant financial problems continue to exist in low- and moderate-income communities.
When you look at a map of Cleveland, a pattern begins to emerge that is not unlike that being experienced by other communities. The pattern is this: In geographical areas where the number of subprime mortgage loans is the highest, the number of foreclosures for the same geographical area will also be high, while the number of prime loans made by depository banks will be relatively few.
Looking at the same geographical area, we find that neighborhoods experiencing these trends are predominantly African American neighborhoods. Lack of access to prime loans, a high frequency of subprime loans and a high rate of foreclosures are by no means specific to any racial group, but the pattern certainly carries an overtone of America's historic denial of equal rights based on race.
A recently published report entitled ``Paying More for the American Dream'' found that Citigroup, Countrywide, GMAC, HSBC, JP Morgan Chase, Washington Mutual and Wells Fargo all originated a substantial volume of both higher-cost subprime and lower-cost prime loans.
Mr. Speaker, this is an issue that I am proud to join my colleagues, including my friend and colleague from Cleveland, Mrs. Tubbs Jones, and I thank her for the work she has done on this issue.
American families are hard-working, good people who deserve financial security. American families do not deserve to have their physical, emotional and financial security compromised by predatory lending practices engaged in by the subprime mortgage industry.
Subprime mortgage lending includes a wide range of loan products; what these loans have in common is that they are marketed to hardworking people made vulnerable by credit scores that disqualifies them from traditional loans or who have a limited credit history thereby limiting their borrowing power.
Subprime lending is associated with significantly higher levels of foreclosure than prime lending.
Subprime lenders make accessible mortgage loans of up to $1 million and often the borrower will be able to obtain ``cash out'' refinancing. Additionally, subprime lenders offer 100 percent financing to those who have poor or limited credit.
Subprime lenders are known for their forceful marketing techniques which include ``stated income'' loans in which the barrower is not required to provide documentation supporting claims of income.
This places American families in danger of borrowing a substantially greater amount than what is reasonably affordable and places them in danger of being unable to meet their mortgage payments.
These predatory lending practices are forcing large numbers of American families into foreclosure. Said another way--American families are loosing their homes; homes that they have worked hard for. They are enduring undue stress and emotional instability when confronted with this prospect.
As 2006 came to an end, approximately 2.2 million American families who had borrowed money from a subprime lender had either lost their home to foreclosure or are thought to be in danger of foreclosure at some point in the near future.
The Center for Responsible Lending conducted a study in which they found that ``millions of American households will lose their homes and as much as $164 billion due to foreclosures in the subprime mortgage market.''
My home state of Ohio leads the nation in the rate of foreclosure. Ohio's foreclosure rate (3.3 percent) is roughly three times the national rate, according to the Mortgage Bankers Association.
Cuyahoga County, which includes Cleveland, my home town, had 11,000 foreclosures in 2005, more than triple the number a decade earlier.
In Cleveland in 1995, local depositories held about 60 percent of the market share of mortgages. By 2005, that number had dropped to 20 percent.
What has happened to my city in the past decade is a story that is reflected nationwide.
Furthermore, foreclosure has a detrimental effect on the greater community. Neighborhoods with foreclosed properties are likely to experience declining property values. These lower property values and the corresponding decline in owner equity can contribute to additional incidents of foreclosure in our communities.
Foreclosed homes are often left vacant for extended periods of time and can subsequently attract crime to our neighborhoods which further hurts our communities and threatens our families.
I began my political career as a representative of Slavic Village in the Cleveland City Council. Later I became the mayor of Cleveland and during my tenure, Cleveland became the first city to sign a Community Reinvestment Act Agreement pursuant to the newly enacted Community Reinvestment Act of 1977.
The Community Reinvestment Act, or CRA, was passed to prevent lending institutions from withholding home loans or insurance from communities labeled as economically risky.
Additionally the Act was intended to expand credit and depository services to low and middle income communities.
The Community Reinvestment Act both extends and clarifies the long standing expectation by hardworking Americans that financial institutions will serve the convenience and needs of their local communities.
The CRA established a regulatory regime to monitor the lending, investment and services offered by banks in low and moderate income neighborhoods and has resulted in significant benefits.
Lenders and community organizations have signed 428 CRA agreements totaling more than $4.1 trillion in reinvestment dollars between the CRA's enactment in 1977 and the beginning of 2005.
The CRA has also facilitated a surge of home loans to low-income and minority households.
Despite these positive gains, significant financial problems continue to exist in low and moderate income communities.
When you look at a map of Cleveland, my home town, a pattern begins to emerge that is not unlike what is being experienced by cities around the country.
The pattern is this: In geographical areas where the number of subprime mortgage loans is the highest, the number of foreclosures for the same geographical area will also be high, while the number of prime loans made by depository banks will be relatively few.
Looking at this same geographical area we find that the neighborhoods experiencing these trends are predominately African-American neighborhoods.
Lack of access to prime loans, a high frequency of subprime loans and a high rate of foreclosures are by no means specific to any racial group, but the pattern certainly carries an overtone of America's historic denial of equal rights based on race.
A recently published report entitled Paying More for the American Dream found that Citigroup, Countrywide, GMAC, HSBC, JP Morgan Chase, Washington Mutual and Wells Fargo all originated a substantial volume of both higher cost subprime and lower cost prime loans.
The report also found that for these seven lenders, the percentage of total home purchase loans to African Americans that were higher-cost was six times greater than the percentage of higher cost home purchase loans to whites. (41.1 percents vs. 6.9 percent).
Loans to Latinos that were higher-cost loans were 4.8 times greater than the percentage of higher cost home purchase loans to whites (32.8 percents vs. 6.9 percent).
In each of the cities examined, the seven lenders combined showed larger African American/white and Latino/white disparities than those exhibited in the overall lending market.
Foreclosure and discrimination in lending practices are serious problems for America's cities. We are now on the brink of a massive wave of foreclosures in this country.
Although there are a significant number of individuals and organizations working to reverse existing problems in the lending system and create viable alternatives to foreclosure and subprime mortgages, the tide will not be turned because the magnitude of the problem outstrips even the best of their abilities and efforts.
To turn the tide of foreclosure in America's cities, leadership at the federal government level is necessary as well. We must examine the problem and the steps that can be taken before it becomes bigger and beyond us all.