Protecting consumers from predatory lenders: Defining the problem and moving toward workable solutions

Harvard Civil Rights-Civil Liberties Law Review

Volumn 35, Issue 1, 2000, Pages 55-254

  Goldstein, Deborah ^a,b,c  

^a BROWN UNIVERSITY   (United States)

^b HARVARD LAW SCHOOL   (United States)

^c HARVARD GRADUATE SCHOOL OF DESIGN   (United States)

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[No Author keywords available]

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EID: 9144259650     PISSN: 00178039     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Article

References (168)

1. 15 U.S.C. § 1691 (1994).
2. See Randy Kennedy, Home Lender Settles Case Alleging Bias, N.Y. TIMES, June 23, 1999, at B1.
3. See id.
4. See id.
5. Community advocates use the term "predatory lending" as shorthand to describe a variety of practices that exploit vulnerable borrowers, such as the elderly or undereducated. See, e.g., William J. Brennan, Jr., Predatory Mortgage Lending Practices, New Dimensions in Home Ownership and Housing Finance - Understanding the Subprime Market (Oct. 23, 1998) (defining predatory lenders as lenders who "purposely target homeowners with substantial equity but less than perfect credit for high cost, abusive mortgage loans") (unpublished manuscript, on file with the Harvard Civil Rights-Civil Liberties Law Review). However, there is no established, objective definition of the term. Part II suggests inquiries to help narrow the definition of predatory lending.
6. See Kennedy, supra note 2, at B1 (noting allegations that many of Delta's borrowers "lived without utilities or skipped meals to meet loan payments").
7. See Hillel Levine & Lawrence Harmon, Blacks and Jews; Profits and Prophets: Overcoming Civil Rights in Boston, TIKKUN, July-Aug. 1988, at 45 (describing the disintegration of inner-city neighborhoods as a result of a banking consortium's policy to make high-risk loans available without regard to borrowers' credit histories and despite high foreclosure rates).
8. See Luxman Nathan, Borrower Beware: Equity Strippers Are Preying on Elderly Homeowners, COMMUNITIES & BANKING, Spring 1999.
9. See FREDDIE MAC, AUTOMATED UNDERWRITING REPORT: MAKING MORTGAGE LENDING SIMPLER AND FAIRER FOR AMERICA'S FAMILIES ch. 5 (1996) [hereinafter FREDDIE MAC UNDERWRITING]. Credit scoring is based on a borrower's credit history, as recorded by credit reporting agencies. An A borrower has no late credit payments, while a D borrower would demonstrate a pattern of late payments. An A- borrower might have fewer than two late payments and no recent history of bankruptcy. Traditional lenders, also referred to as prime lenders, serve A borrowers, while subprime lenders serve borrowers whose A-, B, C, or D ratings prevent them from obtaining credit in the prime market. See Kathy R. Kaiser & Debra L. Novak, FDIC Subprime Lending: A Time for Caution, REGIONAL OUTLOOK, Third Quarter 1997, at 3. Freddie Mac is a federally chartered corporation that increases the availability of mortgage funds by serving as a secondary mortgage market conduit between mortgage lenders and investors. See FREDDIE MAC, 1998 ANNUAL REPORT.
10. See FREDDIE MAC, AUTOMATED UNDERWRITING REPORT: MAKING MORTGAGE LENDING SIMPLER AND FAIRER FOR AMERICA'S FAMILIES ch. 5 (1996) [hereinafter FREDDIE MAC UNDERWRITING]. Credit scoring is based on a borrower's credit history, as recorded by credit reporting agencies. An A borrower has no late credit payments, while a D borrower would demonstrate a pattern of late payments. An A- borrower might have fewer than two late payments and no recent history of bankruptcy. Traditional lenders, also referred to as prime lenders, serve A borrowers, while subprime lenders serve borrowers whose A-, B, C, or D ratings prevent them from obtaining credit in the prime market. See Kathy R. Kaiser & Debra L. Novak, FDIC Subprime Lending: A Time for Caution, REGIONAL OUTLOOK, Third Quarter 1997, at 3. Freddie Mac is a federally chartered corporation that increases the availability of mortgage funds by serving as a secondary mortgage market conduit between mortgage lenders and investors. See FREDDIE MAC, 1998 ANNUAL REPORT.
11. NORMA GARCIA-PAZ, THE HARD SELL: COMBATING HOME EQUITY LENDING FRAUD IN CALIFORNIA, (Consumers Union, San Francisco, Cal., 1998) .
12. See Nathan, supra note 8, at 7-8; see also Heather Timmons, Two States' Lawmakers Targeting Predatory Lending, AM. BANKER, June 9, 1999, at 9 (quoting South Brooklyn Legal Services Attorney claiming that "hundreds of complaints" have been received in the last year).
13. Nathan, supra note 8, at 8.
14. See id. It is not entirely certain, however, that the estimates cited above indicate an increase in predatory lending. Other factors, such as growth in the housing market or increased consumer awareness of how to handle lending abuses, may also play a role.
15. See, e.g., Equity Predators: Stripping, Flipping and Packing Their Way to Profits: Hearings Before the Senate Special Comm. on Aging, 105th Cong. 238-46 (1998) [herein-after Equity Predators Hearings] (testimony of Elizabeth Renuart and Margot Saunders, National Consumer Law Center).
16. See Randy Kennedy, Borrowers Beware: A Special Report; Suits Say Unscrupulous Lending Is Taking Homes from the Poor, N.Y. TIMES, Jan. 18, 1999, at A1 (quoting Marc Miller, whose family manages the Delta Financing Corp., stating that "there are many people who want and need a loan and can't get one. From that standpoint we fill a very legitimate niche in the consumer finance field."); see also John R. Wilke, Justice, FTC Probe Lenders, Allege Abuses, WALL ST. J., Jan. 30, 1998, at A3 (quoting the spokesman of Associates First Capital Corp., the nation's largest home equity lender, saying "consumer-finance lenders make credit available to a broad spectrum of people who might not otherwise be able to borrow").
17. See Randy Kennedy, Borrowers Beware: A Special Report; Suits Say Unscrupulous Lending Is Taking Homes from the Poor, N.Y. TIMES, Jan. 18, 1999, at A1 (quoting Marc Miller, whose family manages the Delta Financing Corp., stating that "there are many people who want and need a loan and can't get one. From that standpoint we fill a very legitimate niche in the consumer finance field."); see also John R. Wilke, Justice, FTC Probe Lenders, Allege Abuses, WALL ST. J., Jan. 30, 1998, at A3 (quoting the spokesman of Associates First Capital Corp., the nation's largest home equity lender, saying "consumer-finance lenders make credit available to a broad spectrum of people who might not otherwise be able to borrow").
18. See Reform of the Real Estate Settlement Procedures Act (RESPA) and the Truth in Lending Act (TILA): Joint Hearings Before the Subcomms. on Financial Institutions and Consumer Credit and Housing and Community Opportunity of the House Comm. on Banking and Financial Services, 105th Cong. 52-55 (1998) [hereinafter RESPA Hearings] (statements of Daniel W. Morton, Huntington National Bank, and John J. Hayt. National Home Equity Mortgage Association).
19. See discussion infra Part III.A.1.
20. See discussion infra Part III.A.2.
21. See discussion infra Part III.B.
22. See discussion infra Part III.D.1, 2.
23. See Steve Cocheo, Give Me Your Delinquents, Your Former Bankrupts, Yearning to Borrow . . . , ABA BANKING J., Aug. 1, 1996, at 31, 36 (ellipses in original title).
24. See Paul Muolo, High Allure, High Costs for B&C, U.S. BANKER, June 1996, at 79, 80.
25. Many subprime lenders do not rely upon traditional credit scoring techniques, but favor less standardized risk models instead. Some subprime lenders make story or capacity-based loans, for which lenders listen to applicants' stories to "determine if their trouble [is] a one-time problem or [if it is] indicative of a history of inability to pay debt." Cocheo. supra note 21, at 35.
26. In addition, servicing practices like the invoice have become common in both traditional and subprime markets.
27. Such fraud can have a large impact on the financial industry. A study conducted for Freddie Mac reveals that of 44,665 cases of financial-institution fraud reported in 1996, 3.2% involved mortgage loan fraud. Mortgage loan fraud accounted for 12.9% of total monetary losses. See Michele M. Walczak, Mortgage Industry Turns Up Heat on Fraud Artists, SECONDARY MORTGAGE MARKETS, Oct. 1997, at 6-7.
28. See Equity Predators Hearings, supra note 14, at 93 (statement of William J. Brennan, Jr., Atlanta Legal Aid Society, Inc.).
29. In contrast, public programs do not allow loan funds to be dispersed directly to the contractor.
30. See Telephone Interview with a local affordable housing counselor (July, 1999), supplemented by e-mail (on file with author).
31. The loan included a 10-point origination fee, and the windows cost $8,500.
32. See Individual and Focus Group Interviews with housing counselors, Neighborhood Reinvestment Training Institute conference, Chicago, Ill. (June 28-29, 1999).
33. See Walczak, supra note 25, at 7.
34. See Prime Time Live (ABC television broadcast. Apr. 23, 1997).
35. See discussion infra Part II.B.
36. The industry is beginning to move in this direction with the advent of automated underwriting.
37. Indeed, many homeowners take out second mortgages to consolidate their debt for good reason, borrowing against home equity to improve homes, for example. Such borrowers may be willing to agree to disadvantageous loan terms in order to obtain financing.
38. See supra note 21 and accompanying text.
39. See Equity Predators Hearings, supra note 14, at 87 (statement of William J. Brennan. Jr., Atlanta Legal Aid Society, Inc.).
40. See id.
41. See id. at 33 (testimony of "Jim Dough." former employee of a predatory lender).
42. See id. at 93 (statement of William J, Brennan, Jr., Director, Home Defense Program of the Atlanta Legal Aid Society, Inc.). Lenders often perceive that an arbitration forum will be more favorably disposed to their interests than a court. Where such binding arbitration clauses exist, they usually require borrowers to help pay for the arbitration.
43. See Interview with housing advocate (June 30, 1999).
44. See Agreement Containing Consent Order, In re The Money Tree, Inc. and Vance R. Martin, 123 F.T.C. 1187 (1997) (File No. 932 3023) .
45. See id. The final settlement required that The Money Tree and its officers allow customers to cancel the insurance packages and to obtain cash or credit refunds. It also prohibited the company from requiring consumers to sign a statement that their insurance purchase was voluntary. The Money Tree was required to tell consumers that their loan applications had been approved before referring to the extras and to disclose that credit life insurance or auto club memberships were optional.
46. See Individual and Focus Group Interviews with housing counselors, supra note 30.
47. See supra notes 28-29 and accompanying text.
48. See Telephone Interview with a local affordable housing counselor, supra note 28.
49. See Julia Patterson Forrester, Mortgaging the American Dream: A Critical Evaluation of the Federal Government's Promotion of Home Equity Financing. 69 TUL. L. REV. 373, 389-90 (1994).
50. Fox News 5 Investigation (WAGA-TV FOX television broadcast, May 4, 1998).
51. See Equity Predators Hearings, supra note 14, at 31-32 (statement of "Jim Dough," former employee of a predatory lender).
52. See id.
53. See id.
54. See id.
55. See Telephone Interview with local affordable housing counselor, supra note 28.
56. See Individual and Focus Group Interviews with housing counselors, supra note 30.
57. Half of those age 65 or older held 58.6% or more of their wealth in home equity. Twenty percent of owner-occupied units with an elderly householder have less than $10,000 outstanding in principal on their homes, compared with fewer than 10% of all other homeowners. See JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY, THE STATE OF THE NATION'S HOUSING: 1997. Thirty-one percent of elderly householders have less than eight years remaining on their mortgage, compared with less than five percent of all other householders. See U.S. DEP'T OF COMMERCE BUREAU OF THE CENSUS, AMERICAN HOUSING SURVEY FOR THE UNITED STATES IN 1995 132, 366 (1995) (tabulations made by author). Twenty-eight percent of lower-income elderly homeowners have more than $100,000 of equity in their homes (lower income refers to those earning 80% of the area median and elderly refers to persons aged 65 or older). Thirty-eight percent have between $50,000 and $99,999 of equity in their homes. See FEDERAL RESERVE BOARD, THE 1995 SURVEY OF CONSUMER FINANCE (tabulations made by the Joint Center for Housing Studies of Harvard University and on file with author).
58. Half of those age 65 or older held 58.6% or more of their wealth in home equity. Twenty percent of owner-occupied units with an elderly householder have less than $10,000 outstanding in principal on their homes, compared with fewer than 10% of all other homeowners. See JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY, THE STATE OF THE NATION'S HOUSING: 1997. Thirty-one percent of elderly householders have less than eight years remaining on their mortgage, compared with less than five percent of all other householders. See U.S. DEP'T OF COMMERCE BUREAU OF THE CENSUS, AMERICAN HOUSING SURVEY FOR THE UNITED STATES IN 1995 132, 366 (1995) (tabulations made by author). Twenty-eight percent of lower-income elderly homeowners have more than $100,000 of equity in their homes (lower income refers to those earning 80% of the area median and elderly refers to persons aged 65 or older). Thirty-eight percent have between $50,000 and $99,999 of equity in their homes. See FEDERAL RESERVE BOARD, THE 1995 SURVEY OF CONSUMER FINANCE (tabulations made by the Joint Center for Housing Studies of Harvard University and on file with author).
59. Half of those age 65 or older held 58.6% or more of their wealth in home equity. Twenty percent of owner-occupied units with an elderly householder have less than $10,000 outstanding in principal on their homes, compared with fewer than 10% of all other homeowners. See JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY, THE STATE OF THE NATION'S HOUSING: 1997. Thirty-one percent of elderly householders have less than eight years remaining on their mortgage, compared with less than five percent of all other householders. See U.S. DEP'T OF COMMERCE BUREAU OF THE CENSUS, AMERICAN HOUSING SURVEY FOR THE UNITED STATES IN 1995 132, 366 (1995) (tabulations made by author). Twenty-eight percent of lower-income elderly homeowners have more than $100,000 of equity in their homes (lower income refers to those earning 80% of the area median and elderly refers to persons aged 65 or older). Thirty-eight percent have between $50,000 and $99,999 of equity in their homes. See FEDERAL RESERVE BOARD, THE 1995 SURVEY OF CONSUMER FINANCE (tabulations made by the Joint Center for Housing Studies of Harvard University and on file with author).
60. See Telephone Interview with local affordable housing counselor, supra note 28. Approximately half of all homeowners age 65 or older had repairs or maintenance work performed on their homes during a two-year period. See U.S. DEP'T OF COMMERCE BUREAU OF THE CENSUS, AMERICAN HOUSING SURVEY FOR THE UNITED STATES IN 1993, 352 (1993). The Joint Center for Housing Studies estimates that less than 12% of do-it-yourself repairs are done by homeowners age 65 or older. In comparison, more than one-quarter of all homeowners are age 65 or over and almost one-third of owners that hire professional remodeling contractors are in this age group. See JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY, IMPROVING AMERICA'S HOUSING: THE REMODELING FUTURES PROGRAM (1999). For example, while 41% of homeowners between the ages of 65 and 74 hire professionals for home repair work, only 34% of homeowners between the ages of 25 and 34 hire professionals. See U.S. DEP'T OF COMMERCE BUREAU OF THE CENSUS, AMERICAN HOUSING SURVEY FOR THE UNITED STATES IN 1997 (tabulations made by the Joint Center for Housing Studies of Harvard University and on file with author).
61. See Telephone Interview with local affordable housing counselor, supra note 28. Approximately half of all homeowners age 65 or older had repairs or maintenance work performed on their homes during a two-year period. See U.S. DEP'T OF COMMERCE BUREAU OF THE CENSUS, AMERICAN HOUSING SURVEY FOR THE UNITED STATES IN 1993, 352 (1993). The Joint Center for Housing Studies estimates that less than 12% of do-it-yourself repairs are done by homeowners age 65 or older. In comparison, more than one-quarter of all homeowners are age 65 or over and almost one-third of owners that hire professional remodeling contractors are in this age group. See JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY, IMPROVING AMERICA'S HOUSING: THE REMODELING FUTURES PROGRAM (1999). For example, while 41% of homeowners between the ages of 65 and 74 hire professionals for home repair work, only 34% of homeowners between the ages of 25 and 34 hire professionals. See U.S. DEP'T OF COMMERCE BUREAU OF THE CENSUS, AMERICAN HOUSING SURVEY FOR THE UNITED STATES IN 1997 (tabulations made by the Joint Center for Housing Studies of Harvard University and on file with author).
62. See Telephone Interview with local affordable housing counselor, supra note 28. Approximately half of all homeowners age 65 or older had repairs or maintenance work performed on their homes during a two-year period. See U.S. DEP'T OF COMMERCE BUREAU OF THE CENSUS, AMERICAN HOUSING SURVEY FOR THE UNITED STATES IN 1993, 352 (1993). The Joint Center for Housing Studies estimates that less than 12% of do-it-yourself repairs are done by homeowners age 65 or older. In comparison, more than one-quarter of all homeowners are age 65 or over and almost one-third of owners that hire professional remodeling contractors are in this age group. See JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY, IMPROVING AMERICA'S HOUSING: THE REMODELING FUTURES PROGRAM (1999). For example, while 41% of homeowners between the ages of 65 and 74 hire professionals for home repair work, only 34% of homeowners between the ages of 25 and 34 hire professionals. See U.S. DEP'T OF COMMERCE BUREAU OF THE CENSUS, AMERICAN HOUSING SURVEY FOR THE UNITED STATES IN 1997 (tabulations made by the Joint Center for Housing Studies of Harvard University and on file with author).
63. See Monroe Friedman, Confidence Swindles of Older Consumers, 26 J. CONSUMER AFF. 23 (1992).
64. Approximately 40% of persons over the age of 75 and 23% of persons between 65 and 75 live alone, while less than 10% of persons between the ages of 20 and 55 live alone. See U.S. DEP'T OF COMMERCE BUREAU OF THE CENSUS, MARCH 1997 CURRENT POPULATION SURVEYS (tabulations made by author).
65. See supra note 3 and accompanying text.
66. See Interviews with regulators (June 24, 1999 and August 2, 1999).
67. See N.C. GEN. STAT. § 24-1.1 (1999). High-cost loans are defined as loans that either charge an interest rate more than 10% above Treasury-bill rates or have points and fees in excess of five percent of the loan amount (legitimate fees to third parties, such as appraisals or title insurance, are not included). See § 24-1.1E (A)(4).
68. See §§ 24-1.1E (B)(1)-(4).
69. See § 24-1.1E(C)(3)(A).
70. See § 24-1.1E(C)(2).
71. See § 24-1.1E(C)(1).
72. See 1999 N.Y. Laws 4731 § 4(A); see also Heather Timmons, Home Equity: Two States'Lawmakers Targeting Predatory Lending, AM. BANKER, June 9, 1999, at 9.
73. See Katharine Eraser, New York State Weighing Proposed Rule Designed to Curb Predatory Lending, AM. BANKER, Aug. 16, 1999, at 2.
74. See 12 U.S.C. § 1735f-7(a) (1994).
75. § 1735f-7(a)(1)(A).
76. See § 1735f-7(b)(2).
77. For a list of jurisdictions that opted out (fifteen states and Puerto Rico), see William N. Eskridge, Jr., One Hundred Years of Ineptitude: The Need for Mortgage Rules Consonant with the Economic and Psychological Dynamics of the Home Sale and Loan Transaction, 70 VA. L. REV. 1083, 1109 n.92 (1984).
78. See Home Ownership and Equity Protection Act, 1993: Hearings on S. 924 Before the Senate Comm. on Banking, Housing, and Urban Affairs, 103d Cong. 6-7 (1993).
79. See Smith v. Fidelity Consumer Discount Co., 898 F.2d 907 (3d Cir. 1989).
80. See Forrester, supra note 47, at 417.
81. See RESPA Hearings, supra note 16, at 432 (testimony of Margot Saunders, National Consumer Law Center).
82. 12 U.S.C. § 3800 (1994).
83. § 3802.
84. AMTPA could be amended so that it applied only to first and second liens primarily for the acquisition or construction of a residence or to allow its refinancing structure to offer a more favorable rate to the borrower.
85. Certainly, there are disadvantages associated with leaving regulation to the states. These include the fear that some states would not choose to enact regulations on predatory lending or would not be able adequately to reach those lenders doing business in multiple jurisdictions.
86. See, e.g., Truth in Lending Act, 15 U.S.C. § 1601 (1994 & Supp. II 1996).
87. See, e.g., Real Estate Settlement Procedures Act. 12 U.S.C. § 2601 (1994 & Supp. II 1996). This approach assumes that borrowers respond rationally to information about their loans. Unfortunately, some lenders or brokers are able to find ways to obfuscate information and circumvent disclosure requirements.
88. See Effects of Consolidation on the State of Competition in the Financial Services Industry: Hearings Before the House Comm. on the Judiciary, 105th Cong. 26-28 (1998) (statement of William J. Baer, Director of Bureau of Competition, FTC).
89. 15 U.S.C. § 45 (1994).
90. 15 U.S.C. § 1601 (1994 & Supp. II 1996). See discussion infra Part III.D.1.
91. See Brief for the Federal Trade Comm'n, FTC v. Capital City Mortgage Corp., et al. (D.D.C. 1998) (Civ. No. 98-237).
92. See id.
93. See id.
94. See id.
95. Predatory lenders are more likely than other lenders to use abusive collection practices because they have made high-risk, high-cost loans and may view aggressive collection as the only way to obtain payment.
96. 15 U.S.C. § 1681 (1994).
97. See § 1681(h). Predatory lenders may avoid reporting to credit agencies because they want to prevent competitors from obtaining information about their customers.
98. 15 U.S.C. § 1692 (1994).
99. See § 1692(c).
100. See § 1692(e).
101. See § 1692(d).
102. 15 U.S.C. § 1691 (1994).
103. See Brief for the Federal Trade Comm'n, supra note 85, and accompanying text.
104. See supra notes 1-4 and accompanying text.
105. See 15 U.S.C. § 1691 (1994).
106. See § 169 1(d).
107. See § 1691(e).
108. See Brief for Federal Trade Comm'n, supra note 85, and accompanying text.
109. See id.
110. 18 U.S.C. §§ 1962(c)-(d), 1964(c) (1994).
111. See Complaint, Fair Housing Counsel of Greater Washington, Inc. v. Capital City Mortgage Corp., (D.D.C. 1998) (visited Jan. 15, 1999) .
112. See id.
113. 15 U.S.C. § 1601 (1994 & Supp. II 1996).
114. 12 U.S.C. § 2601 (1994 & Supp. II 1996).
115. See 15 U.S.C. § 1605 (1994 & Supp. II 1996).
116. See 12 U.S.C. § 2603(a) (1994 & Supp. II 1996).
117. See § 2607.
118. See 15 U.S.C. §§ 1635(a),(e) (1994 & Supp. II 1996).
119. See Brief for Federal Trade Comm'n, FTC v. The Money Tree. Inc. and Vance R. Martin (F.T.C. 1997) (No. C-3735).
120. See id.
121. See id.
122. See FEDERAL RESERVE BOARD AND DEP'T OF HOUSING AND URBAN DEVELOPMENT, 1998 JOINT REPORT CONCERNING REFORM TO TILA AND RESPA 2.
123. See id. at 15.
124. See RESPA Hearings, supra note 16, at 365 (testimony of John J. Hayt, National Home Equity Mortgage Association).
125. 15 U.S.C. § 1601 (1994 & Supp. II 1996).
126. See §§ 1605-1606 (restricting terms); § 1639 (specifying disclosure requirements).
127. See §§ 1602(aa)(1)-(5).
128. See § 1602(aa)(1)(B).
129. See § 1639(a)(1).
130. See § 1639(a)(2)(A).
131. See § 1639(a)(2)(B).
132. See § 1639(b)(1).
133. See §§ 1639(C)-(g).
134. See § 1641.
135. See § 1639(1); § 1640(e).
136. See Equity Predators Hearings, supra note 14, at 249-50 (testimony of Elizabeth Renuart and Margot Saunders, National Consumer Law Center).
137. See id.
138. See N.C. GEN. STAT. § 24-1.1 (1999).
139. See Problems in the Home Equity Market: Predatory Lending: Hearing Before the Senate Comm. on Banking, Housing and Urban Affairs, 103d Cong. 3 (1993) (statement of Kathleen Keest and Margot Saunders, National Consumer Law Center).
140. While 76.3% of prime borrowers strongly agreed that they were in control of their finances, only 57.3% of subprime borrowers felt the same. 8.7% of subprime borrowers felt that they were not in control of their finances, compared to 4.1% of prime borrowers. Seventy-five percent of prime borrowers said that they searched for the best interest rates some or a lot, while only 56.4% of subprime borrowers did. 28.6% of subprime borrowers said that they did not search at all, compared to 13.2 % of prime borrowers. See Freddie Mac, Consumer Knowledge and Confidence (1997) (unpublished survey, on file with the Harvard Civil Rights-Civil Liberties Law Review).
141. See, e.g., Jon Hanson & Douglas Kysar, Taking Behavioralism Seriously: The Problem of Market Manipulation, 74 N.Y.U. L. REV. 630 (1999). For a discussion of how cognitive biases influence consumer decisions in the home mortgage market see Forrester, supra note 47.
142. See Forrester, supra note 47, at 384. Forrester suggests that people may underesti-mate foreclosure risk due to the availability heuristic, which represents the tendency to view an event as probable if the event is easy to imagine or remember. Because foreclosure is rare and not very public, homeowners are unfamiliar with the event and underestimate its likelihood. See id. at 384.
143. See id. at 384-85.
144. Id. at 385.
145. See id.
146. See Freddie Mac, supra note 134.
147. See id. For example, approximately 30% of subprime borrowers have experienced an illness or unexpected medical expense, compared to approximately 15% of prime borrowers. Twenty-one percent of subprime borrowers face unemployment, while only eight percent of prime borrowers are unemployed (tabulations made by author).
148. These data were initially published by the Federal Financial Institutions Examination Council and tabulated by Michael Collins as part of a cooperative project between the Neighborhood Reinvestment Corporation and the Joint Center for Housing Studies (data on file with the Harvard Civil Rights-Civil Liberties Law Review).
149. See id.
150. See id.
151. See id.
152. 12 U.S.C. § 2801 (1994).
153. § 2901.
154. See 12 U.S.C. § 2803(a).
155. See § 2803(h)(5)(i).
156. See § 2803(b)(4).
157. See FEDERAL FINANCIAL INSTITUTIONS EXAMINATION COUNCIL, A GUIDE To HMDA REPORTING: GETTING IT RIGHT! (1998).
158. See id. The Woodstock Institute recently estimated that the percentage of denied loans reported without racial data in Chicago has climbed from 10% in 1991 to 42% in 1997. WOODSTOCK INSTITUTE, NEW LENDING FACT BOOK SHOWS LENDERS NOT REPORTING RACIAL DATA; PROBLEM WORSENS IN LATEST DATA (1999).
159. See id. The Woodstock Institute recently estimated that the percentage of denied loans reported without racial data in Chicago has climbed from 10% in 1991 to 42% in 1997. WOODSTOCK INSTITUTE, NEW LENDING FACT BOOK SHOWS LENDERS NOT REPORTING RACIAL DATA; PROBLEM WORSENS IN LATEST DATA (1999).
160. See 12 U.S.C. § 2801.
161. See § 2903(a).
162. See § 2906(b)(1)(A).
163. See The Financial Services Act of 1999: Hearings Before the House Comm. on Banking and Financial Services, 106th Cong. 163-93, 188-202 (1999) (statement of Deborah Goldberg, Center for Community Change).
164. See Office of Thrift Supervision Order No. 99-39, Approval of Applications for Permission to Organize a Federal Savings and Bank and Holding Company Acquisition (June 30, 1999).
165. See id.
166. See id.
167. See FREDDIE MAC UNDERWRITING, supra note 9.
168. RESPA, HOEPA Reform Called For, NATIONAL MORTGAGE NEWS, Sept. 2, 1999.