Contact: Suzanne Trimel For immediate release
(212) 854-6579 854-5573 May 6, 1999
Fannie Mae Chairman, at Columbia, Issues Caution:
Predatory Lenders May Target Minority Homeowners
Franklin Raines, chairman and chief executive officer of home mortgage financing company Fannie Mae, offered the inaugural Moran Weston Lecture at Columbia University‚s School of International and Public Affairs on April 22, calling for an increase in consumer education to combat predatory homeowner lending practices.
In his lecture, Raines said so-called predatory lending „tends to target some of the same people who have been helped most by the transformation in housing finance, such as low-income and minority families.š He said many low-income and minority families are part of what‚s known as a „subprime market,š customers who have difficulty obtaining loans from more conventional sources such as banks, because they earn low salaries or have poor credit histories.
There are companies that specialize in lending to subprime customers, and in some cases, Raines said, these companies target homeowners whose homes have high equity value and who often have few or no mortgage payments left to make. Often, though, these people are elderly and on fixed incomes, and frequently tap into their credit cards for extra cash. These companies convince people to reduce credit card debt by repeatedly refinancing their houses. As a result, said Raines, „consumers ... never escape the burden of debt.š In some instances, these companies also tack on extra fees and hidden costs in a practice known as „packing.š
„We can‚t just say caveat emptor and walk away,š Raines said. „The lending community itself should make the commitment to key principles that define good lending practices.š
At the same time, Raines pointed to an increase in minority home-ownership brought about in part by a „national policy of creating as many homeowners as possibleš coupled with a housing finance system increasingly adaptable to homebuyers‚ needs. He said mortgage lenders are now more willing to lend to homebuyers who can only afford a low down payment and to people with questionable credit histories. „The system also better understands that credit reports don‚t tell the whole story about a family and their ability and willingness to make mortgage payments,š he said.
Also, he said, the housing finance system accepts that in today‚s „mobile society and job market,š a homebuyer who has held many jobs is not necessarily a lending risk.
Fannie Mae is the largest non-bank financial services company in the world and the nation‚s largest source of financing for home mortgages. Raines stepped down as Director of the Office of Management and Budget and a member of President Clinton‚s Cabinet in May, 1998 after two years of service. He became chairman and CEO of Fannie Mae in January, 1999.
The Moran Weston lecture honors Rev. M. Moran Weston, a Columbia University Trustee Emeritus, who was a major developer of affordable housing in New York City. Weston, a 1930 graduate of Columbia who also earned the Ph.D. in 1954, was a founder and member of the board of the Harlem-based Carver Federal Savings and Loan Association and former rector of St. Philip‚s Episcopal Church.
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