Greenspan Joins Critics of Mortgage Fee Gouging
Federal Reserve Chairman Alan Greenspan added his voice Wednesday to the mounting criticism of so-called predatory lending practices by mortgage companies that target low-income borrowers, primarily minorities.
In a speech before a community advocacy group, Greenspan said the companies could be damaging poorer neighborhoods through “abusive lending practices” that can lead to unaffordable mortgage payments and foreclosure.
Greenspan’s remarks, his first on the subject, came as community activists descended on Capitol Hill to complain about Wall Street’s role in financing such lenders.
Two lenders--First Alliance Mortgage Corp. in Irvine and Ameriquest Mortgage Corp. in Orange--and the investment bankers that support them have become major targets of criticism.
Led by the grass-roots Assn. of Community Organizations for Reform Now, or ACORN, the protesters say those lenders are charging excessively high fees, as much as 10% of the loans, to people who have poor or no credit. That’s as much as 10 times what most homeowners pay in so-called points for mortgage loans.
Greenspan, speaking at a convention of the liberal National Community Reinvestment Coalition in Washington, said the Federal Reserve is working on several fronts to address the practices. He said the Fed recently convened a group of regulators from various banking agencies to develop methods of dealing with predatory lending.
A series of congressional hearings in recent years has shown that incidents of aggressive sales tactics and excessively high fees and interest rates were growing around the country.
Legislation to curb such practices has been proposed in several states, including California. ACORN has prodded several states to investigate lending practices. In addition, the Justice Department has been looking into the matter since late 1998.
Greenspan’s remarks came a day after Comptroller of the Currency John D. Hawke Jr., who oversees nationally chartered banks, also decried predatory lending in a speech to the community investment group.
“We must target not just the predators themselves, but the conditions that allow them to flourish,” Hawke said. “That means encouraging responsible competition in the same markets in which the predators operate. It means helping low- and moderate-income Americans to gain a better understanding of their financial obligations and options.”
Mitchell Rosenberg, an Ameriquest executive vice president, denied accusations that the company engaged in unfair lending. First Alliance executives could not be reached but have previously denied any wrongdoing.
The market for so-called sub-prime loans, made to those with poor or no credit, has been hot nationwide, accounting for $268 billion in mortgages in 1997, the latest year for which figures are available.
The National Home Equity Mortgage Assn., a Washington trade group, said the niche industry is highly fragmented, with none of the 35,000 lenders nationwide holding more than a 3% share of the market.
Publicly traded First Alliance, a lightning rod for criticism in recent years because of its aggressive sales practices, is among the companies whose lending activities are being reviewed by the Justice Department and about a half-dozen states.
In addition, several borrowers and the American Assn. of Retired Persons are suing First Alliance on claims that the company has taken advantage of seniors and low-income homeowners.
On Monday, ACORN members attending a national conference in Washington staged rallies at Ameriquest’s offices in Maryland and at the Washington office of investment banking firm Salomon Smith Barney. Salomon is one of the Ameriquest’s largest loan purchasers.
At the Ameriquest protest, more than 400 people from as far away as Los Angeles carried signs and rallied in front of the building for an hour while demanding a meeting with company officials. Unable to get much response using a bullhorn, more than 100 people marched into the offices.
Rosenberg said the branch office’s 10 employees were so overwhelmed by the crowd that they locked themselves into a back office. Local police helped resolve the dispute by arranging a telephone call between Maud Herd, ACORN’s national president, and Kirk Langs, Ameriquest’s chief executive.
Langs agreed to meet with Herd at a later date, as yet unspecified.
At Salomon offices, protesters tried to enter the building but were turned away by security guards.
Rosenberg defended Ameriquest’s lending record.
“We agree there are lenders out there that are guilty of the issues or practices surrounding predatory lending,” he said. “But we’re not one of them. . . . If we weren’t doing this right, we wouldn’t be in business.”
In fighting the sub-prime industry in recent years, ACORN has lobbied lawmakers in some states for legislation curtailing predatory lending. So far, California, Minnesota, Missouri, Illinois and New York have introduced bills, said ACORN spokeswoman Lisa Donner.
Rep. Janice Schakowsky (D-Ill.), a member of the House Banking Committee, has introduced federal legislation that would, in part, require third-party witnesses to home loans and would set a threshold for what is considered a high-cost loan.
In California, state Sen. Hilda Solis (D-La Puente) is sponsoring a bill that would require government-approved counselors to review certain sub-prime mortgages with borrowers before deals are completed. The bill also would eliminate prepayment penalties.