WHEREAS, A study of lending practices in Philadelphia authored by the Pennsylvania Association of Community Organizations for Reform Now (ACORN) made the following findings relating to one neighborhood in the City.
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While all lending increased 400% from 1992 to 1998, conventional lending increased only 61% compared to a subprime lending creasing of 4800%.
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Subprime loans grew from only 5.3% of all loans originated in 1992 to 63% of all loans originated in 1998.
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Foreclosures have increased 93% since 1990. Of the foreclosures for which it was possible to identify the original lender, 79% were non-bank lenders; and
WHEREAS, Studies conducted by ACORN and others throughout the nation have documented that many subprime lenders routinely engage in predatory lending practices, such as:
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imposing severe prepayment penalties on loans to lock homeowners into oppressively high interest rates;
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structuring adjustable interest rates so the payments adjust only upward and never fall;
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requiring a balloon payment whereby a borrower must pay off virtually the entire loan amount despite making periodic payments for 15 years;
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flipping homeowners who are currently struggling with mounting debt into home loans in which monthly payments may be lower but the total mount of principal and interest exceeds the previous loans many fold; and
WHEREAS, There are currently no legal prohibitions against making or arranging such predatory loans; and
WHEREAS, Further investigation must take place to determine the extent and nature of subprime and predatory lending practices throughout the City; and
WHEREAS, If it is determined that predatory lending is widespread throughout Philadelphia, this Council must devise remedies against these practices to protect our citizens against the complete loss of the equity on their homes; now therefore
RESOLVED, BY THE COUNCIL OF THE CITY OF PHILADELPHIA, that Council authorizes Council's Committee on Finance to conduct a full and comprehensive investigation of the lending practices of subprime lenders in Philadelphia and the effect of predatory lending practices on the City's homeowners, and the remedies that can be developed against such practices by the Council;
RESOLVED FURTHER, That in furtherance of its investigation the Committee is empowered to compel the attendance of witnesses and the production of documents and other evidence at any meeting of the Committee to the full extent, and in the manner, authorized by Section 2-401 of the Home Rule Charter.
End