Although most banks have played no role in the subprime lending business, some banks have played a very significant role. We have numerous cases involving these bank-owned subprime entities. In these cases, we have seen countless examples of abusive lending practices, including high interest rate and points, loan flipping, home improvement scams, credit insurance packing, high prepayment penalties, etc. Some banks make capital loans to support the operations of subprime mortgage companies. Other banks support subprime mortgage companies by acting as trustees in the securitization process.
Some banks engage in redlining practices.
In sum, the involvement of these banks with subprime lending has been a devastating development in terms of the expansion of abusive, predatory mortgage practices in low and moderate income and minority communities. The fact that these banks are federally regulated has made little difference. So far, the bank regulators have done little to stop the overcharging on cost and the other abusive practices. Now, to my dismay, Fannie Mae and Freddie Mac have announced they are getting into the subprime mortgage lending business. Unfortunately, self-reform does not seem to be occurring.