Advocates for low-income borrowers seek interest rate threshold

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Posted 4:04PM on Monday, March 18, 2002

ALBANY, N.Y. - Advocates for low-income borrowers told legislators Monday that they need to enact stronger defenses against "predatory" lending, including an interest-rate threshold that is opposed by the banking industry. "We've come to see predatory lending as perhaps the most threatening neighborhood development issue today," said Sarah Ludwig, director of the Neighborhood Economic Development Advocacy Project. Ludwig and others described a recurring pattern of high-interest mortgage loans leading to foreclosures, with lenders targeting elderly or minority populations. The hearing, held by the Senate Banking Committee, addressed several proposals in the state Legislature related to predatory lending. The practice, condemned by mainstream lenders, involves misleading borrowers about the terms of their loan or knowingly committing them to loans they cannot repay. "We've heard from people all over the state with loan terms that are just unbelievable," said Fred Griesbach, acting state director of the AARP. While some opponents classify any home loan at a "sub-prime" or high-interest rate as predatory, real estate and banking industry officials cautioned against placing an upper limit on interest rates, as proposed by one bill in the state Senate. Sub-prime loans, which come with a high-interest rate because lenders take a higher risk of default, are the only option for many borrowers, they said. Michael Smith, president of the New York Bankers Association, said that severe restrictions could limit the number of available loans for individuals with poor credit history or young borrowers. "It is critical that while seeking to stop abusive predatory loan practices, we do not throw the baby out with the bath water," Smith said. Sam Cooper, executive vice president of JP Morgan Chase Mortgage Corp., said enacting the rate threshold could make loans less accessible at any interest rate. "The risk associated with a high-cost loan are very dramatic and it's questionable whether you could recover some of the risks of taking that loan," Cooper said. The proposals pending in the Legislature are designed to plug loopholes that have become clear since October 2000, when the state Banking Department enacted a series of regulations to curb abusive practices in the mortgage industry. Sub-prime credit is still available, and the costs of a loan have come down, said Elizabeth McCaul, state Superintendent of Banks. But the marketplace still needs better regulation, advocates say. New York state leads the nation with 33 percent of refinanced loans at sub-prime rates in 2000, Ludwig said. The national average was about 25 percent that year, the last for which statistics are available, she said. Besides better market protection, AARP representatives called for a measure giving swindled borrowers the ability to recoup their losses in court.