They may only be able to get mortgage loans in the subprime market, which charges higher interest rates. Clearly, to get the credit they will have to pay somewhat higher rates because of the greater risk they represent. But these families should not be charged more than the increased risk justifies. These families should not be stripped of their home equity through financing of ex- tremely high fees, credit insurance, or prepayment penalties.
They should not Mississippi unsecured loans be forced into constant refinancings, losing more and more of the wealth they have taken a lifetime to build to a new set of fees, with each transaction. They should not be stripped of their legal rights by mandatory arbitration clauses that block their ability to go to court to vindicate their protections under the law. Some people argue that there is no such thing as predatory lending because it is a practice that is hard to define. The fact that we cannot get a precise definition should not stop us. Ac- cording to this reasoning, the proper response is improved enforcement. The FTC, to its credit, has been active in bringing cases against predatory lenders for deceptive and misleading practices. However, because it is so difficult to bring such cases, the FTC further suggested last year a number of increased enforcement tools that would help Mississippi unsecured loans to crack down on predators. I hope we will get an opportunity to discuss these proposals as the hearings progress. I also support actions by regulators to utilize authority under existing law to ex- pand protections against predatory lending. I also note that the Federal Trade Commission voted 5 to 0 last year in support of many of the provisions of the proposed regulation.
Campaigns to increase financial literacy Nebraska loans for unemployed and industry best practices must also be a part of any effort to combat this problem.
Many industry groups have contributed time and resources to educational campaigns of this type, or developed practices and guidelines, and I applaud and welcome this as an integral part of a comprehensive response to the problem of predatory lending. But neither stronger enforcement, nor literacy campaigns are enough. And while we must aggressively pursue financial education, we must also recognize that education takes time to be effective, and thousands of people are being hurt every day. But such lending must be consistent with and supportive of the efforts to increase homeownership, build wealth, and strengthen communities. In the face of so much evidence and so much pain, we must work together to ad- dress this crisis. Before taking your testimony, let me express my appreciation to all of you for your willingness to leave your homes and come to Washington to speak publically about your misfortunes. In my view, you ought to be proud that you are contributing to a process that I hope will lead to some action to put an end to the kinds of practices that have caused each of you such heartache and trouble. PREPARED STATEMENT OF SENATOR WAYNE ALLARD I would like to thank Chairman Sarbanes for holding this hearing. This is an important topic, and I am glad that this Committee will have an opportunity to ex- amine it more closely. In the various Housing and Transportation Subcommittee hearings over the last 3 years, predatory lending came up on several occasions. It is an abhorrent practice, and as Ranking Member of the Subcommittee I am particularly concerned about predatory lending that involves FHA loans. The fraud perpetrated in those cases not only victimizes the individual family, but also robs the taxpayers, who are respon- sible for backing the loan through FHA. During my years as Chairman, and now as Ranking Member of the Housing Sub- committee, I have seen firsthand how important homeownership is to Americans, after all, it is the American Dream. It is reprehensible that a small number of indi- viduals prey upon those hopes and dreams, turning the dream into a nightmare. I am pleased that this Committee will have an opportunity to examine some of the issues surrounding predatory lending. While we hear a great deal about preda- tory lending, much of what we know seems to come from anecdotes. I believe it is important that we examine the problem in a careful, reasoned way. In this manner we can first get a clear idea of exactly what constitutes predatory lending, and how great the scope of the problem is. Next, we can consider whether current laws are adequate or whether we need additional laws.
I particularly wish to focus on the matter of enforcement. While predatory lending is obviously occurring under the current laws, it may very well be that the current laws are adequate, but simply not well enforced. Similarly, any additional laws that this Committee may pass would be of little value if they are not enforced. As important as it is need cash California to curb predatory lending, any actions considered by Con- gress, the States, or regulatory bodies must be made with caution.
While predatory lending is by its nature deceptive and fraudulent and should be stopped, there is certainly room for a legitimate subprime lending market. Subprime lending expands homeownership opportunities for those families that may have experienced credit problems or who have not had an opportunity to establish credit. The subprime market gives Mississippi unsecured loans them access to financing that allows them to experience the dream of homeownership. Without access to this market, far Mississippi unsecured loans fewer people would own a home. It is no coinci- dence that subprime lending has greatly expanded as the country is experiencing record homeownership rates. If we are not careful with any legislation, we could end up hurting the very people that we are trying to help.
Because there will always be those who disregard the laws, we must also find ways to pro- mote personal protection and responsibility.