Seattle, WA Calling on Federal Reserve to Take Action Against Predatory Lending Practices

Type: Resolution
Status: Adopted on 10/29/07
Vote: Unanimous
Source File: http://tinyurl.com/2mjmnl
Text:
Resolution Number: 31023
A RESOLUTION whereby the City of Seattle calls on the Federal Reserve to use its authority to take action against predatory lending practices.
WHEREAS, data from 66% of the lending industry shows that 14.2% of mortgage loans made in Seattle during the last year were subprime loans; and
WHEREAS, some mortgage brokers and subprime lenders aggressively market these high-cost home loans through a technique called "Target Practice" by the lending industry which involves soliciting borrowers through the mail and placing them on a "Hot List" of potential prospects; and
WHEREAS, some subprime mortgages involve unfair credit practices designed to lure unqualified and uniformed borrowers, including undisclosed prepayment penalties and interest rates that rise sharply over time stripping borrowers of the equity in their homes; and
WHEREAS, approximately 80% of subprime mortgage loans have prepayment penalties and adjustable interest rates that increase after 2 years versus only 2% of prime loans; and
WHEREAS, undisclosed high interest rates and prepayment penalties can range from $3,000 to $6,000 and trap borrowers into the loan by keeping them from shopping for a mortgage with a lower interest rate thus stripping them of any accumulated equity; and
WHEREAS, some subprime lenders make these loans without an assessment of whether or not the borrower will be able to afford the payments after the interest rate increases; and
WHEREAS, less than half of all subprime loans include property taxes and insurance in the monthly payment, and some lenders fail to adequately inform consumers of these expenses; and
WHEREAS, some borrowers of subprime loans want to have their property taxes and insurance included in their monthly payment, and many borrowers have been misled to believe that their payments includesuch taxes and insurance; and
WHEREAS, in Seattle it is estimated that16.8% of subprime loans made over the last 2 years will end up in foreclosure when borrowers have to make a lump sum payment of their property taxes and insurance; and
WHEREAS, 2006 alone resulted in 450 foreclosures in the City of Seattle resulting in close to a $23 million reduction in property values due to vacant homes; and
WHEREAS, these predatory loans have led to an increase in foreclosure rates which in turn hurts families that end up losing their homes; and
WHEREAS, Seattle borrowers who lose their homes will lose over $3 million in equity and down payments; and
WHEREAS, these practices are commonly referred to as "predatory lending"; and
WHEREAS, the Federal Home Ownership and Equity Protection Act (HOEPA) instructs the Federal Reserve Board to protect consumers from predatory lending (15 U.S.C. section 1639 (L) (2; and
WHEREAS, regulations issued by the Federal Reserve could assist Seattle homeowners who otherwise could fall prey to predatory lending practices;
NOW THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF SEATTLE THAT:
The Seattle City Council calls on the Federal Reserve to take all action within its authority to:
Section 1. Prohibit lenders from marketing the kinds of adjustable rate home mortgages (ARMs) that are designed to lure unqualified and uninformed borrowers by offering low initial interest rates that increase to unaffordably high adjustable rates for the remainder of the loan;
Section 2. Prohibit banks and mortgage companies from including substantial prepayment penalties and exit penalties in ARM loans made to home buyers or home owners; and
Section 3. Designate as an unfair and deceptive practice the failure to fully inform consumers about whether property taxes and insurance have been included in any mortgage payment or calculation for a first mortgage home loan.
Category:City Governments
Category:Predatory Lending
Category:Resolutions
Category:Seattle
Category:Washington