This has resulted in a flood of new liti- gation against mortgage brokers and wholesale lenders and has caused a great deal of uncertainty and anxiety in the mortgage in- dustry.
The cost of defending these class actions is staggering. The prospect of a court deciding that the prevalent method of compensation for over half the mortgage loans in America is illegal is chilling, to say the least. Further down the road, many small business men and women will not be able to stay in business as mortgage brokers without being able to offer these no-cost loans. As competition decreases, all potential mortgage borrowers will suffer higher costs and fewer choices. Chairman, this illustrates the unintended consequences that can come from litigation, regulation, or legislation that singles out one part of the mortgage industry, places blanket restrictions on prohibitions of certain types of loans and products, or unreasonably restricts interest rates and fees.
Virtually no loan terms are always abusive, and almost any loan term that is offered in the market today can be beneficial to some consumers. Whether a loan is abusive is a question that turns on context and circumstances from case to case. This is why NAMB and the mortgage industry have opposed legislation or regulation that would impose new blanket restrictions or prohibition on loan terms. We believe such measures will increase the cost of home- ownership, restrict consumer choice, and reduce the availability of credit, primarily to low- and moderate-income borrowers. We believe all three of these areas must be addressed together and with equal forces if the problem is to be solved without unintended consequences that I mentioned earlier.
The mortgage industry is working vigorously in all three areas and NAMB wants to continue working with Congress to ad- dress all these areas, in particular, reform and simplification of the online payday loans Florida mortgage loan process. This part of the solution is one toward which NAMB has put a tremendous amount of effort. This is a comprehensive overhaul of the statutory framework governing mortgage lending. We cannot 257 emphasize enough to this Committee how badly this framework needs to be changed and how important this is to curtailing abu- sive lending. The two major statutes governing mortgage lending have not been substantially changed since they were enacted in 1968 and 1974.
The disclosures required under these laws are confusing and overlapping. The laws actually prevent consumers from being online payday loans Florida as well informed as they could be and put consumers at a decided dis- advantage in the mortgage process. NAMB has been engaged from the beginning in efforts to reform the laws regulating mortgage originations and we remain com- mitted to the goal of comprehensive mortgage reform and sim- plification. We urge this Committee in the strongest terms possible to work with our industry on mortgage reform. In conclusion, I want to reiterate that NAMB supports measures by the industries and regulators to curb abusive practices, punish those who do abuse consumers, and promote good lending practices.
We support legislation that would reform and simplify the mort- gage process and believe this is the legislation that is online payday loans Florida most needed to empower consumers. The problem of predatory lending can only be solved through a three-pronged approach of enforcing existing laws, targeting bad actors, educating consumers, and reforming and simplifying the mortgage process. In considering any new leg- islation, we urge Congress to apply this fundamental principle: Ex- pand consumer awareness and consumer power rather than restrict consumer choice and product diversity. That should be the goal of any new legislation affecting the mortgage process. Thank you for this opportunity to express our views and we look forward to working with the Committee in the future. We will now hear from David Berenbaum, the Senior Vice Presi- dent, Program and Director of Civil Rights for the National Com- munity Reinvestment Coalition. For more than 10 years, the National Community Reinvestment Coalition has been a leading force in promoting economic justice and increasing fair access to credit, capital, online payday loans Florida and banking services for traditionally underserved communities. STATEMENT OF DAVID BERENBAUM SENIOR VICE PRESIDENT PROGRAM AND DIRECTOR OF CIVIL RIGHTS NATIONAL COMMUNITY REINVESTMENT COALITION Mr. Thank you, Chairman Sarbanes, Members of the online payday loans Florida Committee. We are extremely concerned about the prevalence of predatory lending in our Nation. During the next 5 minutes, I will try to synthesize the remarks included in our over 20 pages of testimony and exhibits. Let it be said and let it be heard that the continuation of redlining Tennessee installment loans is in our Nation. Before, where overt discrimination occurred, overt consumer de- nial with regard to access to credit was commonplace, today, we are dealing with a race tax.
In fact, if you look at recent HUD-Treasury studies, they report that African-Americans are five times more likely to receive subprime loans than their white neighbors. You go in and in fact, they give you papers in compliance with the Truth in Lending Act, in compliance with all other consumer protections. And then they try to sell you a online payday loans Florida product that has four points, fees, single-premium credit life, and that has a balloon note. Now picture that individual going into a suburban location. In fact, another division of the very same company.
And you are told, that you can get a prime note with one point, no single-premium credit. In fact, this is not, as was referenced, a rogue lender. It is an example of many corporate lenders in our country right now, hav- ing subprime divisions that market themselves exclusively to urban communities while their prime traditional lending banks covered by CRA, in fact, are operating in predominantly white areas. These are refinanced loans that were originated in the subprime marketplace in 1999. You see the concentration in the areas that have the darker shading which represent predomi- nantly African-American and Latino areas. I submit to you that the prime lending that is occurring in Afri- can-American communities is coming from responsible lenders that are living up to their commitments under the Community Reinvest- ment Act and in partnership with community-based organizations. Financial modernization, the changing nature of the mortgage marketplace has prompted an atmosphere where many lenders are not falling within compliance reviews, are not falling with existing statutory reviews.
Best practices include the lender marketing their goods in both the urban and suburban areas and where they have agreements.