Issue Summary:
Abusive and predatory lending practices are a serious problem for our nation's communities. While predatory lending is mostly found in subprime loans, not all subprime loans are predatory. Irresponsible and abusive lending practices are a major problem for our nation's communities. While abusive lending occurs much too often in subprime markets, not all subprime loans are abusive or problematic. In fact, responsible subprime lenders have played an important role in helping millions of consumers achieve homeownership. Unfortunately, some lenders abuse their role and take advantage of vulnerable borrowers by charging extremely high interest rates and loan fees unrelated to risk, using aggressive sales tactics to steer consumers into unnecessarily expensive or inappropriate loan products, and advertising "teaser" interest rates (like the 2/28 or 3/27 adjustable rate mortgage) that steeply increase after the first few years of the loan. The consequences of abuses in the subprime market are higher foreclosures leading to the loss of a family's home and savings and increased vacancy rates which, in turn, can cause all homes in the neighborhood to lose value.

Senator Chris Dodd (D-CT), chairman of the Senate Banking Committee, and Barney Frank (D-MA), Chairman of the House Financial Services Committee, have mainly focused their attention in this area on 1) pending regulatory guidance that may curb promblematic lending activities in the future and 2) the significant increase in foreclosure on residential mortgages in the subprime market. While both Chairmen have indicated a willingness to develop bipartisan workable solutions to the current problems in the subprime mortgage market, only Chairman Frank has committed to consider legislation.

NAR Policy:

NAR supports federal legislation and regulation that prevents predatory lending while maintaining a role for responsible subprime lending. REALTORS® believe that loan originators should treat all parties honestly in a mortgage transaction and that lenders should make loans to borrowers that are fair and affordable. NAR supports requiring lenders to make subprime loans that have a reasonable debt-to-income ratio and escrows for taxes and insurance. Lenders should offer borrowers a reasonable choice of mortgages with interest rates and other fees that appropriately reflect the borrower's credit risk. NAR also urges various actions to prevent foreclosure and minimize its impact and related policy initiatives.

Finally, REALTORS® believe that financial education is an important defense to helping prevent consumers from getting into abusive mortgages that will undoubtedly be financially destructive. NAR, in partnership with the Center for Responsible Lending, has issued a series of consumer education brochures, which emphasize how important it is for consumers to make sure they fully understand the types of mortgages available and how to avoid the pitfalls and entrapments of abusive loans.

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