Ample evidence has been presented that documents that the subprime loan market does not function well. These delinquencies lead to foreclosures and, often, abandoned properties and neighborhood decline. They occur due to severe failures in the private marketplace, including the ability of lenders to recoup any losses through excessive up-front fees. Moreover, predatory lending problems in the subprime market lead to high foreclosure levels, especially in minority neighborhoods. For example, a U.S. Department of Housing and Urban Development study of foreclosures in Baltimore found that subprime lenders accounted for 57 percent of foreclosures.
Similar studies show comparable results in other cities.
In Chicago alone, legal aid offices with limited staff have processed over 500 predatory lending cases in the last three years. Neighborhood Housing Services of Chicago estimates that more than 50 percent of the 1,200 requests for foreclosure intervention services it will receive in 2000 are due to predatory lending. While far from sufficient to curb predatory lending, this is a significant proposal, said Malcolm Bush, president of the Woodstock Institute and member of the Federal Reserve Consumer Advisory Council. Now the Federal Reserve needs to go further, and we certainly hope they are able to stand up to the pressure of the subprime industry.