# O **NEWS RELEASE**

+-------------------------------------+--------------------------------+
| ## Comptroller of the Currency      | ##### NR 2001- 93              |
|                                     |                                |
| Administrator of National Banks     |                                |
+-------------------------------------+--------------------------------+

FOR IMMEDIATE RELEASE Contact: Kevin Mukri

November 9, 2001 (202) 874-4876

Remarks by

Julie L. Williams

First Senior Deputy Comptroller and Chief Counsel

Office of the Comptroller of the Currency

Before the

McAuley Institute's 7th National Women and Housing Conference

Washington, D.C.

November 9, 2001

**Challenges Faced by Women in Building and Maintaining Assets**

I would like to thank Jo Ann Kane, a tireless advocate for low-income
women and their families, for inviting me to speak here today. I am also
honored to share the podium with two leaders in the community
development arena \-- Sister Barbara Aires, a longtime advocate of
socially responsible institutional investment, and Elsie Meeks, who has
spent many years working to increase the availability of capital on
Native American tribal lands.

I want to explore three related issues with you today. Where do women
fit into the current financial environment? How do women, particularly
low- and moderate-income women, successfully build and maintain
financial assets? And how do women, as consumers and asset builders,
*keep* those assets and avoid financial pitfalls such as predatory
lending? I can think of no better venue to address these important
questions than here, among a group of people who have dedicated
themselves to improving the economic security of women and their
families.

**Women in the Financial Environment**

Women have made enormous gains in the last 30 years on the political,
social, and economic fronts. Women as individuals have the potential to
become major financial players and women as a group are a major economic
force. Today, nearly 60 percent of all adult women are employed. While
women made up 30 percent of the labor force in 1950, we now make up more
than 46 percent, nearly half of the labor force today. The U.S. Labor
Department reports that 99 percent of women will work for pay at some
point in their lives. In recent years retailers and financial services
institutions have recognized the growing importance of women in the
economy. Women spent \$3.5 trillion on retail products and services in
1997, and advertising industry studies have found that women are the
primary consumer decision-maker in more than *80 percent* of all
households.

Homeownership rates among women are increasing. As of last year, 53
percent of women head of households owned their own homes, a figure that
continues to show an upward trend. Thirty years ago, women faced
tremendous barriers to purchasing their own home. However, the Equal
Credit Opportunity Act, enacted in 1974, set the framework for increased
access to home mortgages and other loans for women and minorities. For
women, this legislation eliminated gender and marital status as factors
that lenders could consider in the credit review process. Over time this
led to further changes by mortgage lenders to eliminate many of the
historical barriers women faced when trying to obtain credit on their
own. For example, mortgage lenders now treat as income the proceeds from
part-time or multiple-job employment, alimony and child support,
foster-care services, and rental payments received from boarders. In
addition, mortgage products have been expanded to decrease the amount of
savings required for down payment and closing costs.

On the commercial lending side, women, in increasing numbers, are
gaining access to capital to start or expand their own businesses. Since
1987, the number of women-owned firms in the U.S. has more than doubled,
with women-owned firms now representing 38 percent of all firms.
Women-owned firms are found across all industries, and are experiencing
the greatest growth in the construction, wholesale trade, and
transportation industries. And while banks' market share of
small-business loans has declined, the percentage of women-owned firms
using bank credit has increased. As banks and other financial service
institutions develop a growing recognition of the market opportunity of
women-owned businesses, they are developing products and services geared
specifically to women entrepreneurs. Banks and other companies are also
increasingly recognizing women as investors, with marketing programs and
investment products targeted toward women.

However, the challenge that women face in this new century is the need
to maintain and build upon the economic gains of the last 30 years. The
number and proportion of families in which a woman is the sole financial
supporter of the household has grown. In 1996, nearly 20 percent of all
families were maintained by women, up from 11 percent in 1970. Although
the trend is encouraging, with the poverty rate for female-headed
households dropping to a record low of 24.7 percent in 2000, women,
particularly the elderly, are still disproportionately living in
poverty.

The financial needs of women differ across economic strata, but all of
these needs center on acquiring, expanding, and maintaining assets. And
the ability to acquire and manage assets depends in a large part on
education and access \-- being adequately informed as to how asset
generation works, and being in a position to acquire and deploy assets.
Naturally, there are a variety of financial products and services to fit
the spectrum of women's financial needs \-- products that allow us to
save, borrow, and invest effectively. Regardless of the need, whether it
is opening a first savings account, putting away money for a down
payment, investing in a new business, or planning for retirement, women
need to gain a familiarity with financial products and services in the
marketplace that will allow them to better handle financial needs.

## 

## Building Financial Assets

Asset creation can be viewed a series of steps for the individual woman
and her family, beginning with the need for short-term financial
protection and then expanding to provide future financial security and
financial opportunity. The starting point, and a difficult one for
disadvantaged women, is a stable income flow to cover routine and
expected expenses \-- the rent or the mortgage payment, the shoes and
blue jeans, the utility bills, supper on the table, or a birthday
celebration.

The first step consists of building savings and acquiring insurance to
deal with next week\'s emergency or unexpected event, such as a health
crisis or major car repair bill. With some protection against
emergencies, a woman can then begin to think about her long-term future
needs, including retirement planning. Today, retirement planning needs
to take place many years in advance of a woman\'s actual retirement
date, and means a lot more than depending on Social Security. Women need
to take advantage of opportunities to participate in a pension plan at
their place of employment, or utilize Keogh plans and other options
available to the women business owner, and make what personal
investments they can, including investments in IRAs, or savings bonds,
that will grow and provide future cash flows. But because they are often
busy caring for others, women may have difficulty focusing on retirement
planning. Social Security Administration surveys found that, as a group,
women experienced the smallest gain in knowledge about Social Security
following the annual mailing of Social Security statements. Women
surveyed were interested in the statements, but did not read them
carefully because they did not have the time.

The final step in building and maintaining assets is the acquisition of
productive assets to expand future income and to leverage into
additional asset growth. The major productive asset for most American
families, including women-headed households, is ownership of a home,
which allows the family to grow equity. Automobile ownership can be a
vital asset, used to access a higher paying job, for the suburban or
rural woman. Business ownership is a productive asset that is not
limited to the wealthy. Finally, although it is a non-financial asset,
investment in *human capital*, through the acquisition of education, is
possibly the most productive asset of all.

How do women acquire productive assets? By leveraging their existing
assets, whether tangible or intangible. By accumulating enough savings
to make a down payment on a home. By developing a business concept and
operating plan that will lead to financing from a bank, a loan guarantee
by the SBA, or funding from a non-profit organization. By having a
stable enough environment, adequate childcare, the confidence, and the
support to apply for a student loan or grant, and to attend classes.
Through the assistance and caring of organizations such as the McAuley
Institute, and the realization of profitable partnership opportunities
between banks and community organizations.

## 

## 

## Needs and Challenges of Low- and Moderate-Income Women

As women are now recognized as an established part of the financial
landscape by the mortgage and commercial lending industries, greater
attention has turned to the financial needs of low- and moderate-income
women. As these needs gain greater attention from the marketplace, the
availability of capital is expanding for low- and moderate-income women
as well. Increasingly, low-income women are finding new products and
services that are particularly relevant to their unique needs. These
products may be provided solely by commercial organizations, or, as is
often the case, provided through subsidy programs funded by foundations
or the government, alone or in partnership with for-profit businesses.
Some products are specifically tailored for women, while others are
appropriate for the entire low-income market, in which women are, as
noted, over-represented.

These products include individual development accounts, microenterprise
loans, low-down payment home mortgage loans, and low-interest student
loans.

It has often been said, in one form or another, that without assets,
poor families are likely to remain poor. And while spending is unlikely
to help anyone escape poverty, saving is the most common first step to
economic mobility. But it is difficult to put away a portion of one's
income when it seems like all of it, and more, is already allocated to
paying for basic necessities. That is why programs and incentives to
help people build savings, like those supplied by Individual Development
Accounts, or IDAs, are critical. IDAs combine the incentive of matched
participant savings with education and personal support from program
staff and other account holders.

Low- and moderate-income women who operate their own small businesses
out of the home, and have no banking history, may find that when they
want to expand their businesses, banks may be unwilling to lend them
money. Despite the ability of small businesses to create wealth and
income for their owners, these microentrepreneurs drop through the
cracks of conventional financing for a variety of reasons. They may have
credit needs that are too small for a bank to profitably handle, flawed
or no credit history, little collateral, incomplete financial records,
or language barriers. However, partnerships between community
organizations and banks have resulted in microenterprise programs that
combine microlending with entrepreneurial training, mentoring, and
on-the-job training to maximize the potential for self-sufficiency.

By far, owning a home is the primary means by which low-income Americans
build long-term assets and increase their financial net worth.
Homeownership is the primary means of accumulating wealth in the United
States, and the most important financial asset that many women have is
their home.

Through homeownership, women invest in an asset that can grow in value
and generate financial security. As mortgage payments are made, the
homeowner's equity grows and can serve as a financial base for other
investments, including education. Homeownership programs targeted to
lower-income individuals, such as the NeighborWorks\' Section 8
Homeownership Program which allows section 8 vouchers to be used toward
mortgage payments, are an important vehicle for expanding access to
homeownership. Many of these programs, including NeighborWorks\', report
that a high percentage of their participants are women.

Along with the potential for asset appreciation, homeownership confers
other benefits. It strengthens neighborhoods by increasing stability,
keeping capital in the community, attracting outside investment, and
raising property values. Homeownership is also positively correlated
with civic involvement, self-esteem, and the sense of control that one
has over her own life.

## The Challenge of Maintaining Assets

Given how important home equity is as an asset for low- and
moderate-income women, it is vital that once such a precious asset is
acquired, it not be pirated away through predatory lending practices. We
have seen tremendous advances over the last several years in credit
availability. Not surprisingly, improved access to credit may mean
higher loan prices for subprime borrowers whose credit profiles present
greater risks. However, responsible subprime lending should not be
confused with predatory lending. There are a great many responsible
subprime lenders who make credit available at rates that reflect the
costs and risks of such lending without engaging in abusive lending
practices. But we do need to recognize that some of the characteristics
that cause a borrower to be a subprime credit are also characteristics
that may make that customer vulnerable to abusive lending practices.

Consider the example of the elderly woman whose home is badly in need of
repairs. With not enough cash on hand to pay for them, the homeowner is
steered to a lender who arranges a refinancing loan for debt
consolidation and home repairs. The homeowner pays 3 points on the loan
and the loan carries a prepayment penalty. A few months later the
homeowner is convinced to refinance the loan again. The new loan is for
a higher principal amount, and the borrower is forced to pay the
pre-payment penalty on the original loan as well as another 2 points in
fees in the new loan. This is the practice known as equity stripping.

Because of schemes such as these, the challenge of maintaining assets,
especially for financially unsophisticated individuals, has become at
least as important as the challenge of building assets. Elderly female
homeowners are primary targets for predatory loans, as many of their
homes have little or no mortgage debt. These women are likely to have
incomes of less than \$30,000 and equity of \$100,000 or more. They are
vulnerable to predatory lending because they face bills from medical
expenses or repairs to their older homes. To pay off their debt, they
have to tap into their home equity. However, their knowledge of
financial alternatives is sometimes limited, and thus they may
unknowingly replace unsecured credit card and personal loan balances
with secured debt using their home as collateral. This is an attractive
market for lenders as estimates based on the American Housing Survey
suggest that elderly female single person households hold approximately
*\$570 billion* in home equity.

One of the most important ways you can make homeowners aware of
predatory lending practices is to help them recognize a loan with
abusive features. The term "predatory lending" is often used to refer to
a wide range of practices and does not lend itself to a clear or simple
definition. These practices include, but are not limited to:

-   loans made in reliance on the value of the borrower's home or other
    collateral, without a proper evaluation of the borrower's ability to
    repay;

-   pricing terms \-- whether interest rates or fees \-- that far exceed
    the true risk and cost of making the loan; and

-   inadequate disclosure of the true costs and risks of the
    transaction.

    Other abusive features include the improper use of credit life
    insurance, balloon payment structures that leave the borrower owing
    most of the principal amount at the end of the loan period, and
    repeated refinancing which can occur from an inability to meet
    either the monthly or the final balloon payment. Each of these
    products has a place in mortgage financing, when used in an
    appropriate manner. For instance, while balloon payments make it
    possible for young homeowners to buy their first house and match
    payments with a rising income stream, they can spell financial
    disaster for those whose income is not likely to rise significantly.
    Likewise, refinancing enable borrowers to take advantage of lower
    interest rates, but they can be used inappropriately to repeatedly
    flip borrower's loan, resulting in high loan processing fees and
    other unnecessary costs.

## Addressing the Challenge

Without a doubt, government has a role in addressing abusive lending
practices, but by no means does it have the only role. The majority of
these loans are made by lenders over whom the federal banking agencies
have little control. Unlike regulated financial institutions, many
nonbank lenders do not undergo periodic compliance examinations. I can
report, however, on steps the OCC is taking to limit the involvement of
national banks in these lending practices.

The OCC issued guidance directing our examiners to review bank lending
policies to ensure that they do not permit loans to be made or purchased
for which there is no reasonable expectation of repayment without resort
to collateral. We have alerted our examiners to look for practices such
as collateral or equity stripping and the use of pricing terms that far
exceed the lender's true risk and cost.

Likewise, we have made it clear that national banks should not make or
purchase loans having these characteristics. We have emphasized that
such loans violate safety and soundness standards and increase the risks
of unlawful discrimination. And indeed the industry has responded in a
variety of ways. For example, several large lenders have discontinued
offering single-premium credit insurance. We are also encouraged by
lenders that establish "two-way" referrals in which an applicant who
qualifies for a prime loan will be referred by the subprime lender up to
the prime lender, rather than referrals only taking place in the other
direction.

In the same vein, we encourage industry efforts to develop standards for
best practices for the subprime lending community, in order to eradicate
predatory lending at the source. I note that Treasury Assistant
Secretary Sheila Bair just yesterday applauded this type of industry
effort and commented that for regulated depository institutions, such
best practices might be incorporated into bank supervisory standards and
enforced through the supervisory process.

The OCC has also taken enforcement actions against banks that we
believed were engaged in unfair and deceptive practices in violation of
the Federal Trade Commission Act. Finally, we will continue using our
chartering and licensing authority to ensure that subprime lending by
national banks and their subsidiaries is conducted responsibly and with
appropriate consumer protections.

Through education and counseling, organizations such as the McAuley
Institute are playing a tremendous role in helping consumers recognize
abusive lending practices. Financial literacy programs enhance consumer
financial skills and provide individuals with a better understanding of
the financial products and services that meet their needs. Understanding
the range of available financial products and services enables consumers
of all income levels to make better-informed choices in the financial
marketplace.

Many of you here today are on the front lines in efforts to combat
abusive lending practices. Those of you who support McAuley's Women's
Homeownership Campaign are working with a program that includes many of
the asset building and maintenance techniques I have discussed today. By
providing technical assistance and training to local organizations, the
McAuley Institute enables a large number of groups across the country to
provide the counseling, educational services, and funding that can help
low-income women obtain the benefits of stable, affordable
homeownership.

## Conclusion

Today, I\'ve discussed the financial progress of women, outlined ways
for low- and moderate-income women to participate in that progress
through asset building and maintenance, and addressed the serious issue
of abusive lending and its potential to rob low- and moderate- income
women of the precious gains that they have made.

It is critically important that organizations such as McAuley continue
teaching women the importance of building and maintaining equity in
their homes. In addition, many banks have worked with community
organizations and governmental agencies to develop financial literacy
programs or provide employees to serve as educators and trainers. Others
support financial literacy organizations through volunteer staff
assistance, loans, and contributions. Building partnerships is what
makes these programs work. The OCC will continue to allow our
institutions to be flexible, innovative, and to try new products that
help low-income individuals become part of the financial mainstream.
Together, community organizations, banks, and government can draw the
best from each other to help all of our Nation's residents build and
maintain the assets that will provide financial security for themselves
and their families.

  -----------------------------------------------------------------------

  \# \# \#

  The OCC charters, regulates and examines approximately 2,200 national
  banks and 52 federal branches of foreign banks in the U.S., accounting
  for more than 54 percent of the nation's banking assets. Its mission is
  to ensure a safe and sound and competitive national banking system that
  supports the citizens, communities and economy of the United States.
  -----------------------------------------------------------------------