One of the most serious threats facing low and moderate income homeowners and potential home buyers is the recent surge in a type of unfavorable mortgage lending which strips equity and increases indebtedness and thus leaves homeowners, either facing foreclosure, or so deeply in debt that their home becomes an economic drag on them, rather than a vehicle for developing wealth.  This type of lending is commonly referred to as “predatory lending.”

Because of a surge in high cost lending during recent years the issue of predatory lending has gained attention at the highest levels of the Federal government.  During the Clinton Administration HUD and the Treasury Department studied the issue and made a series of recommendations for regulatory and legislative changes. The Federal Reserve has proposed that current Home Mortgage Disclosure Act (HMDA) regulations be amended to require that some price information on subprime loans be publicly disclosed information on all loans subject to HMDA.  In addition to the proposed changes to HMDA, the Federal Reserve has recently approved changes in the way that they enforce Regulation Z that governs the Home Ownership Equity Protection Act. Among other items, the Federal Reserve has lowered the threshold at which a loan becomes “high cost” and thus subject to additional Federal protection.  The current Treasury Department has continued the process by attempting to establish a set of “best practices” for subprime lenders upon which the entire lending industry can agree.

At the State level many legislatures have debated new predatory lending legislation and a few like Georgia, North Carolina and California have passed state legislation. Others like Illinois and New York have tightened the regulations that govern home mortgage lending.  Even a number of counties and municipalities have passed legislation that attempts to protect their citizens from predatory lenders.  In almost every case these changes in the law have been pushed by consumer protection and community development organizations and fought by the lenders that make subprime loans.

Because there is no definition of predatory lending that community development/reinvestment groups, consumer protection activists and the lending industry all agree on, for purposes of this report RHI will simply accept a national community group’s definition of the practice as we attempt to create more productive debate about this issue in Iowa.

The National Community Reinvestment Coalition, a national group that represents over 700 community reinvestment and development organizations from across the United States has defined predatory lending in this way:

“Predatory loans are defined as unsuitable loans designed to exploit vulnerable, unsophisticated or elderly borrowers. Predatory loans are a subset of sub-prime loans. A predatory loan has one or more of the following features: 1) charges more in interest and fees than is required to cover the added risk of lending to borrowers with credit imperfections, 2) contains abusive terms and conditions that trap borrowers and lead to increased indebtedness, 3) does not take into account the borrower’s ability to repay the loan, and 4) violates fair lending laws by targeting women, minorities and communities of color.”

Many subprime lenders argue that by providing mortgage lending to people with less than perfect credit records, they are extending the benefits of homeownership to an increased pool of low-and-moderate income individuals. They argue that their higher than normal rates and fees are simply risk-based pricing that fairly compensates them for the increased risk of providing credit to borrowers with faults in their credit records. The countervailing argument of many community activists that the higher rates also contribute to the greater risk of these loans is a chicken-or-the-egg argument that can not be resolved in a mutually agreed upon fashion.

While it is generally accepted that there is a great deal of legitimate subprime lending that is not predatory lending, all predatory lending is nonetheless subprime lending. Because there is no bright line that a neutral observer can use to separate legitimate subprime lending that is in the borrower’s interest and predatory lending that is not, there has been a vigorous debate about how to measure, define and deal with the problem of predatory lending.

Indeed dealing with the problem of predatory lending is hampered by the lack of available public information about the terms and conditions of mortgage loans. The Federal Reserve proposal to require that some pricing data be publicly disclosed is a partial response to this problem. However, as important as such additional interest rate disclosure may be, rates are only one of the factors that community activists look at, in assessing the suitability of a particular loan. Predatory loans can also contain inflated fees or a variety of “junk fees” that pay for non-existent or duplicative services. 

Most community activists would consider a subprime loan predatory if the consumer in fact had a credit record that made he or she eligible for a prime loan. Most activists would also label a loan predatory if it was a high interest loan which contained any of a variety of features like: single premium credit insurance, excessive prepayment penalties, mandatory arbitration clauses, call provisions and balloon payments within the early years of a loan, or if it was a loan that had been flipped within a short time frame without tangible net benefits to the borrower. 

Few if any of these additional features, however, are part of the public record and thus available for study by a group like ours. While the interest rate is sometimes recorded on the mortgage documents filed at the county level, they often are not. A prepayment penalty might be mentioned in the mortgage document, but the only document which details all the costs of entering into a mortgage is the Settlement Statement (HUD -1) which remains a private document that only the lender and the borrower have access to.  While there have been some studies that provide general information about closing costs, they do not provide the kind of lender specific data that would allow states and consumers to identify those lenders who consistently charge the highest fees for a mortgage. 

Because of the limitations of current public information about high cost lending, RHI has undertaken this study of subprime lending in Iowa using a variety of public sources in order to encourage expanded public debate about how to provide Iowans with high quality affordable housing and the best financing that their credit records allow for.  While there is a strong temptation to find and focus on a few “evil predators,” RHI believes that more long term positive results will stem from looking at the whole range of prime and subprime lending.  Our goal is to encourage the entire lending industry to look more closely at their loan products and marketing so that every potential Iowa homebuyer can gain access to housing mortgage products that truly benefit them.

We have chosen to study the levels of lending done by subprime lenders in Iowa because such a study is possible and it provides a framework for understanding the range of loans available to Iowa borrowers. There is a commonly accepted list of subprime lenders that is produced annually by HUD that identifies lenders whose originations are subprime loans at least 50% of the time.

With currently available data there is simply no way to identify predatory or even all subprime loans.   We do believe that basing our study on the loans made by those lenders identified as subprime lenders provides a conservative estimate of the number of subprime loans. Very few of the lenders on the subprime list originate large numbers of prime loans. On the other hand a number of the largest prime lenders (like Wells) do a significant amount of subprime lending but will not appear on HUD’s subprime list because subprime lending represents less than 50% of their overall loans. 

This study concentrates on one metropolitan county, Black Hawk, and six rural counties including Buena Vista, Carroll, Marshall, Van Buren, Washington and Webster.  By including Black Hawk County, which contains the cities of Waterloo and Cedar Falls, and comparing that data with more rural data, we have been able to test the usefulness of HMDA data in rural counties. Within the rural counties, there is a range of population concentration. Van Buren County doesn’t contain a town with a population greater than 2,000 people while Marshalltown in Marshall County contains over 25,000 people. The range of mortgage financing products within these counties varies somewhat depending on the concentration of the population. 

While we understand the limitations of a study that focuses on loans made by lenders on the HUD subprime list, we contend that the current surge in lending by subprime lenders has the potential of putting Iowa consumers at risk. While subprime lending is not the same thing as predatory lending it does represent an indicator of potential danger for Iowa homebuyers.  When subprime loans become the dominant type of loan originated in certain neighborhoods we believe that our community development and affordable housing efforts will be put in danger.  We have undertaken this study to help ourselves, to help our fellow affordable housing activists and our state’s policy makers to better understand the problems Iowans are facing in gaining access to high quality mortgage products.
 

QUESTIONS WE HAVE ASKED
 

As this project has developed, several questions have been posed by the researchers and by those whom we have communicated with about this project. Some of those questions include:

Who are the prime and subprime lenders most active in Iowa?

Does the data really show that subprime lending is increasing in non-metropolitan counties in Iowa?

Is subprime lending primarily focused on refinance loans or is it also focused on home purchase loans?

What share of the mortgage market do small community banks and credit unions (not generally subject to HMDA reporting) typically garner in rural counties?

To the extent that there is subprime lending in rural areas, is it because the small banks in those communities lack the financial capacity to meet the legitimate borrowing needs of their residents?

Do banks in rural counties create openings for subprime lenders by using lending criteria and products that are too conservative? 

Are banks in rural counties selling their loans to the Government Sponsored Enterprises (GSEs) like Fannie Mae and Freddie Mac at the same rate that more urban lenders are?

Are subprime loans disproportionately targeted at minority populations in rural areas in the same way that they are in urban communities?

To what extent are foreclosures more frequent among subprime lenders than among prime lenders?

Are loans for mobile home purchases being provided disproportionately by subprime lenders?
 

SOURCES OF DATA
 

To attempt to answer these questions we have used the following sets of information:

Grantee/Grantor Index Reports

Grantee/Grantor Index Reports include a list of all mortgage records filed with a particular county.  The list is comprised of all mortgage instrument deeds and covers all real estate transfers, refinances, home equity, home improvement and home equity line-of-credit lending. The list can be ordered either by the grantee (purchaser) or grantor (lender) and, in some but not all cases, shows the date of the mortgage filing, document number, the dollar amount of the mortgage transaction, and a brief legal description.  All home mortgage, commercial, industrial and agricultural mortgages are usually listed together. These documents are filed with the county Recorder and data filing requirements vary from county to county.

Home Mortgage Disclosure Act/Loan Application Registers (HMDA/LAR)

All mortgage lending institutions (with some exceptions based on size and location in non-metropolitan counties) are required to provide their regulators with certain information about their mortgage loans.  The Federal Financial Institutions Examinations Council serves as a clearinghouse that provides this information to the general public in various formats on an annual basis. (This data is available in CD ROM form for the years 1992 through 2000. The data for 2001 will not become available to the public from the FFIEC until August, 2002) This data can be separated by state, county as well as census tract and includes type and purpose of each application, amount of loan applied for, race of applicant and co-applicant, income of applicant and final disposition of the application. In some cases when we are relying solely on HMDA/LAR data we provide historical data which starts in 1995 with the awakening of the subprime industry and goes forward through 2000.
 

FDIC Deposit Summaries by County

On its web pages the FDIC maintains a current list of all the depository institutions in every county with other pertinent information about the institutions, including their share of the deposits in banks and thrifts in the county. When attached to loan shares as we have done in Table 6 this information provides a useful guide for determining which lenders are doing a proportionate share of lending within a county.

Community Reinvestment Act Performance Evaluations

Each financial institution covered by the Community Reinvestment Act undergoes periodic evaluations. In the case of small institutions these evaluations contain information about loan to deposit ratios, the type of loans an institution makes, the percentage of loans an institution makes in its service area and the percentage of loans made in low and moderate income geographies.  We have used the loan to deposit ratio of institutions found in these performance evaluations in preparing our some of our tables.

Department of Transportation Lien Records

Mobile home sales including the names of the lien holders are collected on a statewide basis with each county having a code number that allows identification of mobile homes registered in each county.  These records include the age of the unit, the address at which it has been placed, title number, and name of the lien holder. 
 

Local Newspaper Legal Listing of Foreclosures

Each county has a newspaper of record in which the county is required to publish all legal notices.  Notices such as foreclosures, non-judicial foreclosures, and real estate contract forfeitures are published and typically provide information about the parties involved, the property in question, and the extent of indebtedness.
 

Declarations of Value Reports (DOVs)

DOVs or Residential Sales Reports are filed with each county Assessor’s office.  These reports detail all real estate transfer activity.  These can be ordered by either buyer or seller and includes information on the type of dwelling sold (single-family, condominium, contracts, multi-family, vacant lot etc.), the condition of the property, recording date, sales price and assessed value.  The information included in these reports is standard data required to assess all properties for tax valuation purposes.  All home mortgage, commercial, industrial and agricultural real estate transfers are listed together. In 1999, Iowa required all counties to equalize real estate valuations.  The sales price when linked to mortgage amounts listed on mortgage documents can indicate down payment requirements and trends in various counties.

Land Contracts

Land contracts are intermittently recorded at the county level. While the “sellers” are theoretically required to record these contracts, this is not always done, particularly in the most abusive situations. Since a land contract doesn’t involve a transfer of deed, a naÔve, ignorant or non-English speaking buyer may in fact have little protection in keeping the house that they thought they were “buying,” particularly if they fall behind on payments. Because of the lack of public records, research on this phenomenon requires knowledge of a particular community, the ability to attract anecdotal reporting from the individuals involved and gain access to their stories and documents.

Other Data Sets

In addition RHI has used the latest available US Census data when designating the racial characteristics or income levels of particular census tracts.  Racial data for the 2000 Census is currently available but the complete 2000 income data will not be available until late in 2002. We have also used the 1999 GSE State Single Family Data from HUD’s Office of Policy Development & Research.  In identifying subprime lenders we have used the latest available HUD list of subprime mortgage and finance companies. This data set can be retrieved from the HUD web page at: http://www.huduser.org/datasets/manu.html 

FINDINGS OF THE STUDY

Subprime lending has grown substantially in rural Iowa in the last six years.

In each of the seven counties for which we studied the HMDA/LAR data, the number of loans made by subprime lenders grew between 1995 and 2000. This finding is consistent with reports from other parts of the country. One industry watcher, SMR Research of Hackettstown, N.J., has estimated that nationally subprime mortgage originations totaled nearly $167 billion in 2000, compared with $31 billion in 1995. The Mortgage Market Statistical Annual for 1999 estimates that subprime loan originations increased from $35 billion in 1994 to $160 billion in 1999. In their March 2002 report evaluating the Community Reinvestment Act, the Harvard Joint Center For Housing Studies claims that “ the subprime market share increased from less than 5 percent in 1994 to almost 13 percent in 1999. By 1999, outstanding subprime mortgages amounted to 8 percent of the $4.8 trillion in outstanding single-family mortgage debt.” 

As we will show later in this report, HMDA provides only a very general view of lending in rural counties. It is, however, useful in evaluation trends. 

Each county’s loan numbers are listed below:
 

Mortgage loans made by lenders included on HUD’s list of subprime lenders. (Based on 1995 and 2000 HMDA/LAR)

    1995   2000

Black Hawk   200   540
Webster     32   166
Marshall     43   121
Buena Vista          2     47
Washington       30     46
Carroll       2     15
Van Buren       6     12

It is often said that subprime loans are a product that is sold rather than bought.  The dramatic increase in the number of subprime lenders active in rural Iowa counties certainly supports that maxim. In each of the counties that we studied, the number of subprime lenders subject to HMDA who accepted at least one application from a resident of that county grew dramatically between 1995 and 2000. Each county’s number of lenders is listed below:

Subprime mortgage lenders from the HUD list who received at least one application from a county resident according to 1995 and 2000 HMDA/LAR

    1995   2000

Black Hawk   11   61
Webster     4   50
Marshall     6   51
Buena Vista       2   36
Washington       3   34
Carroll     2   33
Van Buren     2   20

Tables numbered 1 provide the list of each subprime lender and their number of applications and loans in each county for each of the years from 1995 though 2000.
 

Who are the major prime and subprime lenders in Iowa?

According to the 2000 HMDA reports Wells Fargo’s bank and mortgage company accounted for the largest number of mortgage applications in Iowa in the year 2000.  This is particularly true when the numbers for Brenton Bank, which Wells acquired in 2000, are added in.  Firstar, which merged with U.S. Bank in 1999, but still reported HMDA loans separately, had the second largest number of mortgage applications. 

Following those two lenders in number of loan applications are several lenders who appear on HUD’s subprime list, Conseco Finance Servicing Corporation, Aegis Mortgage Corporation, The Money Store, Centex Home Equity Corporation, Ameriquest Mortgage Company, Greenpoint Credit, LLC, Fieldstone Mortgage Company and Conseco Bank.

Other prime lenders rounding out the top ten prime lender in Iowa include: Cendant Mortgage, Principal Residential Mortgages, Bank of America, Bank One, Commercial Federal Mortgage, North American Mortgage Company, Countywide, Iowa Bankers Mortgage Corporation and Union Planters Bank.

Other major subprime lenders in Iowa include: Associates Financial Services, NationsCredit Financial Services and Aames Funding Corporation.

First Union, which owned The Money Store, closed down its operations in late June of 2000. Bank of America announced it was getting out of the subprime business during 2001 and sold its NationsCredit unit. Greenpoint has also just announced that it is getting out of the mobile home lending business. The other lenders on this list are, however still active.

Some of the top prime lenders in Iowa are actively involved in subprime lending, even though it doesn’t represent more than 50% of their business.  Wells announced in early 2000 that it hoped to dramatically increase the level of its subprime lending which it estimated at between $600 million and $650 million in loans nationwide during 2000. If these figures are correct and if its subprime lending were distributed proportionately in Iowa, Wells might very easily be one of the ten largest subprime lenders in the state. Since Wells mixes its subprime lending data with the rest of its loans, there is no way for an independent researcher to track this kind of information. 

Among the other major prime lenders Cendant and Bank One each engage in subprime lending and Countrywide has a subprime subsidiary named Full Spectrum. Union Planters reportedly refers many borrowers to Fieldstone Mortgage Company. 

It must be pointed out that banks are subject to the Community Reinvestment Act and as such are often very sensitive and quick to address potential abuses by their subprime subsidiaries. Independent mortgage companies on the other hand have less regulatory oversight.

Detailed lists of the lenders and their number of applications and loans in 2000 are included in Table 2 of the appendix.
 

A higher percentage of refinance loans than home purchase loans are made by lenders on the HUD subprime lender list.
 

In every county we looked at, except Washington County, the percentage of refinance loans made by subprime lenders was much higher than the percentage of home purchase loans. On its face, this fact would seem to argue against the theory that the surge in subprime lending is simply the result of poor credit histories. If this were true it would be likely that just as large a percentage of home purchase loans would be originated by subprime lenders as refinance loans. 

Instead the fact that so many of the loans by subprime lenders are refinance loans would seem to fit with the commonly told story of aggressive marketers talking a home owner into trading away the equity in their house for a cash payout and the consolidation of other consumer debt. While such a deal may look beneficial in the short term, in the end the homeowner is left saddled with a high cost mortgage product that can endanger their ability to hold onto their home.
 

Percentage of loans originated in 2000 that were made by lenders on HUD subprime list according to 2000 HMDA/LAR.

   Home Purchase  Refinance

Black Hawk     9.9%  25.8%
Webster   15.5%  28.2%
Marshall   13.2%  23.7%
Buena Vista   15.4%  38.8%
Washington   18.2%  12.1%
Carroll     8.2%  19.1%
Van Buren   23.1%  50.0%

Tables numbered 3 detail the percentage of prime and subprime home purchase and refinance loans made in each county for the years 1995 through 2000.

Subprime loans carry interest rates that are substantially higher than the rates for prime loans. 

While the interest rates on loans are not readily available from mortgage documents, they are often provided in prospectuses made available to investors when subprime loans are securitized. Reviewing these securitization documents, which encompass loans from across the country, provides us with some sense of the general disparity in rates between prime and subprime loans.

Long Beach Mortgage (a subsidiary of Washington Mutual the largest thrift in the country) securitized a group of approximately 5000 loans late in 2000. The bulk of these first lien loans were “cash out” refinance loans that covered on average 80% of the secured property’s value.  Nearly 85% of these loans contained prepayment penalty clauses.

As one can see in the data taken from that prospectus while the credit ratings of the borrowers tended to be in the higher range of the subprime ratings, the interest rates clustered in a range that was three to six points above the range that most 30 year prime loans were being made for during the time period that these loans were originated.

If subprime loan interest rates were truly risk-based, one would expect to see rates that gradually move up from prime in roughly the same pattern that the borrowers’ credit ratings deviate from “A quality” credit. Concern over these interest rates also depends to some extent on the fees that were charged at closing and other terms that might have been attached to the mortgage.

While this particular data is taken from a Long Beach prospectus, every securitizer of subprime loans files similar documents with the SEC. A general review of those prospectuses will show that the trend illustrated below is typical, perhaps even understated, when compared to the documents of other companies.

Credit Rating   % of borrowers in pool with rating

A1                      7.12%
A2                   34.92
A3           0.66
A4           4.56
A5           2.83
B                  2.02
B-           0.10
B-1       14.46
B-2          1.90
B-3           1.21
B-4             0.18
B-5          0.08
B1       11.13
B2          1.78
B3           1.39
B4           3.41
C           9.80
D          2.43
 
 
 
 
 
 

Interest rate   % of loans in pool with interest rate

7.750   -   8.000 %         0.11%
 8.001   -   9.000          3.31
 9.001   -  10.000      21.74
10.001   -  11.000         32.88
11.001   -  12.000            24.41
12.001   -  13.000           12.97
13.001   -  14.000          3.89
14.001   -  15.000          0.67
15.001   -  15.050           0.02

See Tables numbered 4 for other examples from loan securitization documents.

Although subprime lending in rural areas is growing, county mortgage records illustrate that the subprime share of the mortgage market in non-MSA counties is much lower than a simple review of the HMDA/LAR would indicate.

This study contains some good news for rural consumers.  Because of a strong presence by community banks and credit unions in some counties, subprime lenders have not made as deep inroads into rural counties as the HMDA data would indicate.  Because only the largest banks and mortgage companies are required to report their lending in non-metropolitan counties and because smaller banks only face HMDA reporting requirements if they have a branch in a metropolitan county, a mortgage study that relies just on HMDA/LAR can provide a skewed picture of the amount and nature of lending that occurs in rural counties. 

The lending of small community banks and credit unions will be missed in a study that relies only on HMDA/LAR. As the Harvard Joint Center For Housing Studies CRA report says, “In non-metropolitan areas commercial banks are a much more important source of mortgage credit than in metropolitan areas. In 1995, banks originated over 46 percent of rural
housing loans, greatly in excess of their 20 percent share of urban mortgage originations.” In a state like Iowa, in which only 10 out of 99 counties are included in Metropolitan Statistical Areas (MSAs), and which has a strong community bank and credit union presence, this distinction can be crucial.

One of the questions this study is attempting to clarify is whether subprime lending is in fact becoming a major presence in rural counties. Most of the national attention about predatory lending has focused on urban areas with large minority populations. A simple review of HMDA has seemed to indicate that some rural counties have had an enormous jump in subprime loans.  For instance 42.2% of Van Buren County’s 1999 HMDA/LAR reported loans were made by subprime lenders.  However looking at mortgage records actually filed at the county level shows that only 3.8% of the mortgage documents were filed by subprime lenders.

In reviewing the county mortgage documents RHI catalogued all mortgage documents, but then discarded loans that were obviously agricultural or commercial.  Because there are some loans that cannot be easily labeled, a few small business and agricultural loans may be included in our mortgage record numbers. Because mortgage documents are filed by non-HMDA reporters as well as for some transactions for which HMDA reporting is not required, such as home equity lending, the number of documents filed each year at a county recorder’s office far exceeds the number of HMDA loans reported. 

In the seven counties we studied the ratios ranged between two-to-one in Black Hawk, the MSA County in this study, and eight-to-one in Van Buren, the most rural county that we studied.  This range is easily explainable by the fact that loans in MSAs are more thoroughly covered by HMDA reporting requirements. In addition rural counties near MSAs often have more of their loans covered by HMDA because of the spillover presence of the largest lenders.

HMDA reported loans originated in county as a percent of mortgage documents on file at county recorders office.

Black Hawk    50.4%
Webster      35.0%
Marshall      39.0%
Buena Vista     24.6%
Washington      26.4%
Carroll     16.7% 
Van Buren     12.2%

Because of the discrepancies between HMDA/LAR reporting and mortgage filings the true percentage of home purchase, refinance and home improvement done by subprime lenders is lower than HMDA percentages would indicate, but higher than the county mortgage records percentage. While the percentage of mortgage records filed by subprime lenders was approximately half the percentage indicated by HMDA/LAR in the metropolitan Black Hawk County, the percentage varied widely in more rural counties. The higher the percentage of small banks and other non-HMDA reporters in a county, the more discrepancy there will be between the subprime percentage in the HMDA records and in the county mortgage records.

Subprime percentage of 1999 HMDA/LAR reported loans vs. county mortgage documents.

    HMDA/LAR County Mortgage records

Black Hawk    12.0%   6.3%
Webster      16.1%   6.1%
Marshall      18.8%   5.3%
Buena Vista     18.1%   4.5%
Washington      10.9%   3.5%
Carroll     14.9%   3.1%
Van Buren     42.2%   3.8%

Another way of looking at the same issue is to determine what percentage of a county’s mortgage records are generated by financial institutions that are also HMDA/LAR Reporters.  Because of the regulations governing reporting requirements one could assume that HMDA/LAR reporters would generate a higher percentage of a county’s mortgage records in MSA counties, while they would generate a lower percentage in more rural counties.

In the seven counties we studied in Iowa, this has proven to be the case with over 80% of all mortgage records in Black Hawk County generated by HMDA/LAR reporters, slightly more than 50% originated in Marshall and Webster counties, but only 11% of mortgage records originated by HMDA reporters in Van Buren county. 

Percent of mortgage records in county originated by a HMDA/LAR reporter:

Black Hawk    80.6%
Marshall    53.5%
Webster    58.9% 
Buena Vista    35.0% 
Washington    42.2% 
Carroll    21.9% 
Van Buren    11.4% 

For the summary table of all seven counties and the complete tables for each county, which details the numbers of HMDA/LAR, loans and mortgage records by lender please see Tables 5 & 6 in the Appendix.

Small commercial banks account for a significant percentage of mortgage lending in rural counties.

In the smallest rural counties that we studied small commercial banks (those with assets under $250 million) accounted for the majority of the mortgage documents filed. In Van Buren County, for instance, fully 68% of the mortgage documents were filed by small commercial banks. In Washington and Carroll County these banks accounted for 66% and 59% of the mortgage records filed.  This compares with 16% in the metropolitan Black Hawk County.

Not all non-metropolitan counties had the same dominance by the small banks. Marshall and Webster counties had a much bigger presence by large banks, their subsidiary mortgage companies and thrifts. Independent mortgage companies accounted for less than 10% of the mortgage documents in each of the rural counties and represented only slightly more than 10% in Black Hawk County. Credit unions accounted for less than ten percent of the mortgage records in all counties except for Black Hawk County in which the John Deere Employees Credit Union was a very active presence during the year studied.

For complete data see Tables numbered 7.

There is little evidence that small banks are considerably more conservative in their loan products than larger institutions.

In order to determine the rates of lending for non-HMDA reporting financial institutions in the rural target counties, FIRL conducted a detailed search of two types of county-level mortgage records: all mortgage documents types (listed as  “Mortgages” by the county Recorder) and all declarations of value (DOV) documents.

DOV documents are filed with the county Assessors office and assessed for all real estate transfer taxes (these are then sent to the state Department of Revenue).  DOVs provide a wealth of information regarding the types of real estate transactions being conducted.  The document includes the sellers and buyers name, the purchase price of the property (in some cases the terms and interest rate), the location (urban or rural), classification (residential, commercial or agricultural), assessed value and loan to value ratio (purchase price divided by the mortgage amount).

National studies such as the Harvard Joint Center For Housing Studies CRA Report have documented that rural borrowers are more likely to obtain housing loans with shorter maturities Their report says, “Thirty-year fixed and adjustable-rate mortgages constituted 80 percent of all rural mortgage lending compared to 90 percent of the urban total.” In addition national rural mortgage loans on average have interest rates that are 17 basis points higher than urban mortgage loans.

Some of this price disparity is attributable to a simple lack of competition. The USDA Economic Research Service department has calculated that 23% of all rural counties in the nation have two or fewer banking firms located in them. While these national trends towards more concentrated financial services are distressing, Iowa like much of the upper Midwest still has a much stronger presence of small commercial banks.

Although we have seen and heard anecdotal evidence that some small commercial banks in Iowa are less likely to make loans with higher loan to value ratios, a comparison of the loan to value ratios of small banks versus large banks and independent mortgage companies in the seven counties that we studied did not show a significant difference on average.

See Tables numbered 8 for complete data.

A smaller percentage of loans from the more rural counties were sold to the GSEs in 1999.

HUD collects information about the number of loans that the GSEs buy from each county in the United States and then publishes that information in a document called “GSE State Single Family Data” which is available from HUD’s Office of Policy Development & Research.

In 1999 the GSEs purchased only 17 loans from Van Buren County, the county in which 68% of the mortgage documents were filed by small commercial banks. The trend in the seven counties we studied would seem to indicate that the more market share small community banks have in a county, the lower the percentage of loans sold to the GSEs. Although small banks do sometimes sell their mortgage loans to larger banks, those loans should still appear in the HUD database by county or origin, if the larger banks in turn sell them to the GSEs. 

RHI believes that there are a variety of factors at work in the overall rise of subprime lending. In rural counties those factors sometimes include a lack of mortgage products that address the needs of low and moderate-income borrowers. A more complete effort to identify and address the barriers that small community banks face in attempting to sell high LTV products to the GSEs or to their correspondent banks might well prove helpful for expanding access to affordably priced home mortgages for low-and-moderate income borrowers.

See Table number 9 for complete data.
 
 

Some small community banks have lower than average loan to deposit ratios. These low ratios indicate that they have the financial capacity to meet more of the credit needs of their communities and they should be encouraged to do so as part of any comprehensive effort to expand access to affordable housing in rural Iowa.

Within the target counties we have combined information about the number of branches each CRA-covered institution has in each county and that institution’s loan-to-deposit share.  We include the loan-to-deposit (LTD) share as reported in each small bank’s last CRA evaluation, their most recent CRA rating and the date of their last CRA exam.  This table will provide some basis for reaching out to small banks with below average LTD ratios and lower than expected mortgage market shares.  Since LTD ratios can fluctuate significantly the bank regulators use the average of the quarterly ratios for each quarter between CRA evaluations.

This information can also be used to assess whether subprime lending in rural areas fills a need caused by lack of financial capacity in the small banks in those areas. The last update by the banking agencies of state-by-state loan-to-deposit ratios pegs Iowa's average loan to deposit ratio at 82% (for institutions based in the state).   These calculations are mandated by Section 109 of the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (Interstate Act) and are intended to provide guidance for when an institution is illegally entering the state simply for deposit generating purposes without making a good faith effort to also provide an equivalent amount of loans. 

While the FDIC provides deposit breakdowns by counties there is no similar public county-by-county database of loan share.  HMDA for instance captures only mortgage loans. The regulators tabulate this information in order to assess the LTD ratio of small banks (under $250 million is assets) as part of their CRA evaluation. 

While an LTD ratio can fluctuate because of changing economic conditions, the ratios are calculated on the basis of an average of all the quarterly ratios an institution has maintained since its last CRA evaluation. Because all institutions are subject to the same market forces within similar geographies the ratios provide a useful way for distinguishing institutions that are going out of their way to meet the credit needs of their communities.  There is no strong argument for providing the public benefits of a bank charter and deposit insurance to an institution that in turn places a large percentage of its customers' deposits in risk-free government-backed investments.

Within the seven counties studied for this report the loan to deposit ratios of small banks with branches in the county range from 35.6% to 106.6%. While it would be unreasonable to ask a bank with a loan to deposit ratio of 100% to do more in its community, that is not the case with the many banks with LTDs in the 40, 50 and even 70% range. Because there are a significant number of such small banks it would appear to be difficult to support the occasionally heard argument that national subprime lenders are simply filling a void caused by lack of small bank financial capacity. A bank with a loan to deposit ratio of 35.6% has the financial capacity to do a great deal more lending in its community, if it has the desire and management capacity to do so.

See Tables numbered 10 in the Appendix.

Some large banks do not appear to be providing mortgage lending at levels that their deposit share in particular counties would appear to warrant. They should be encouraged to provide more services and community development investment as well as increased lending in the communities from which they take deposits.

Table 10 also provides a useful guide for determining how well major banks are doing in particular counties. One of the broadly recognized dangers of a large bank presence in a small community is the ability of the bank to capture a large percentage of the deposits in a community without making an equivalent level of effort to provide loans and other services to the community. These tables will enable community groups to make judgments about the level of effort of their financial institutions.

If for instance a large bank has an extensive deposit share in a county without showing a similar loan share within that county, it would be perfectly reasonable for residents to ask for more high quality affordable loan products. Providing high quality affordable loan products means that a bank provides prime rate loans to everyone with good credit who qualifies for the loan regardless of income or ethnic background. A good bank will provide those that qualify with their best conventional product rather than automatically trying to push lower income borrowers into a government-backed loan. A good bank will encourage qualified borrowers to participate in down payment assistance programs, homebuyer counseling programs and other innovative local programs designed to encourage home ownership among low and moderate income borrowers.

Some subprime lending is clustered in particular geographies that have higher levels of minority residents.

Several national studies including NCRC’s study of metropolitan areas in Iowa have shown that subprime lenders have a much larger presence in high minority geographies than they do in primarily white neighborhoods.  While only three of the seven Iowa counties that were studied in more detail are less than 90% white according to the 2000 Census, those rural counties of Iowa that do have a significant minority population do seem to show the same pattern. In Black Hawk County (an MSA) African Americans make up 8.0 % of the population while in Marshall and Buena Vista counties (both non-MSAs), Hispanics make up 9.0% and 12.5% of the population respectively. In each case the census tracts with the highest level of minority populations have higher levels of lending by subprime lenders.

In Black Hawk County the four census tracts in which whites make up less than 50% of the population have significantly higher rates of lending by subprime lenders than the other 32 census tracts. While 12.0% of all 1999 HMDA reported loans in Black Hawk County were made by subprime lenders, the four census tracts in which minorities comprise more than 50% of the population, received 34.9%, 40.5%, 40.0% and 63.9% of their loans from subprime lenders. Overall 28.7% of the loans to minorities in Black Hawk County were made by subprime lenders while 6.8% of the loans to white borrowers were made by subprime lenders.  See Table 11-BH

In Marshall County, which is a more rural county, the same pattern holds. Although not as dramatic, the three census tracts in which the white population comprises less than 90% of the population have higher levels of loans by subprime lenders than the remaining seven census tracts.  In Buena Vista County, another rural county, which also had a large influx of Hispanic population between 1990 and 2000, the census tracts, which show a higher minority population, also have a higher rate of loans made by subprime lenders. See Tables 11-M and 11-BV.

Minority borrowers have a higher share of the subprime market even when controlled for income.

Often when the disproportionate number of loans by subprime lenders to minority borrowers is discussed the subprime lending industry responds by shifting the discussion to poor credit histories and risk. The conscious, or unconscious, assumptions of such a shift are that minority borrowers as a group are inherently greater credit risks than white borrowers.  Yet the evidence for such a conclusion remains quite slim. 

In the landmark Boston Federal Reserve study in which thousands of loan files (including the borrowers credit records) were studied and a large number of other borrower characteristics were factored in, the authors concluded that race alone accounted for at least a third of the difference in the loan denial rates between white and black borrowers for (what was at the time almost exclusively) prime loans. Relatively lower levels of income and assets also accounts for some of the racial disparities in lending records. While there have been studies which show some differences in credit histories by race, there is no evidence to justify geographies and borrowers receiving mostly subprime loans because of their race.

With the surge in subprime loans the problem of discrimination surfaces differently. The problem is not that minorities are denied loans disproportionately, but rather that subprime loans are marketed and targeted towards them disproportionately when many are eligible for prime loan rates. Freddie Mac and Fannie Mae have estimated that anywhere between 30 and 50 percent of sub-prime borrowers could qualify for prime loans. 

While this study does not have the purpose of attempting to prove statistically that such discrimination is occurring in Iowa, we have attempted to provide enough evidence to raise the question for those attempting to grapple with the problems surrounding the development of adequate financing for affordable housing in Iowa. Black Hawk County has enough loans to minority borrowers of varying incomes to provide a meaningful contrast with the experience of white borrowers.

For purposes of simplicity we have divided the 1999 Black Hawk HMDA reported loans of prime and subprime lenders into fifteen categories; loans to white borrowers, minority borrowers, and borrowers whose race is not documented in the HMDA/LAR.  Each of these three groups is then divided by income: $25,000 family income and lower, $25,001 to $50,000, $50,001 to $75,000, over $75,000, and income not available.

In Black Hawk county the thesis that minority borrower are targeted for subprime loans independent of income seems to be borne out. While 38.3% of minority borrowers in the county with incomes under $25,000 obtained loans from subprime lenders, 15.1% of whites with similar incomes did. However in the group with incomes between $50,001 and $75,000 the percentage of white borrowers who obtained loans from subprime lenders had dropped significantly to only 4.2% while minority borrowers with the same incomes received 29.5% of all their loans from subprime lenders.

See Table 12-BH.

To accept the claim that the targeting of minority borrowers by subprime lenders is simply a function of increased credit risk, one would have to conclude that the highest income minority borrowers in Black Hawk county are seven times more likely to have poor credit records than white borrowers. That such is truly the case seems unlikely at best.  It is urgent that prime lenders in Iowa make a concentrated effort to insure that minority borrowers know about their prime loans and that any prime lender that makes some subprime loans have a “referral up” program that is strictly followed within all of its affiliates and subsidiaries. 

Table 13 provides a racial breakdown of all prime and subprime lending in the seven counties during 1999.  Once again one finds that certain subprime lenders appear to heavily target minority borrowers. On a positive note a few prime lenders also appear to do a fair amount of lending to minority borrowers.

Table 12 also shows that subprime lenders provided very high percentages of the loans given to borrowers for whom race was not recorded on the HMDA/LAR report. This illustrates an ongoing problem with HMDA data in that lenders using telephone outreach are not required to collect racial data for their loans.  Nonetheless their outreach is heavily targeted for subprime loans and heavily targeted towards minorities.  The Federal Reserve has proposed a rule that would require the collection of ethnic data on telephone applications as well, but as of the date of this report they have not finalized that proposal.

There is only a slight difference between prime and subprime lenders in the reasons for non-originations, and thus little evidence that subprime borrowers are particularly savvy shoppers.

One of the issues that has interested RHI is the different outcomes for loan applications made by prime lenders as opposed to subprime lenders. HMDA/LAR records code individual loan outcomes in six possible ways.  If a particular loan application does not result in an origination it can be because of the following possible actions:

The loan application is denied.
The application is approved, but the loan is not accepted by the customer.
The application is withdrawn by the applicant.
The file is closed for incompleteness.

Because there is such a stark difference between the origination rates of prime lenders and subprime lenders (66.9% vs. 26.0% in Iowa during 2000) it is useful to analyze the difference in outcomes. 

Theoretically if most of the applications that do not end up approved are in fact denials, one could make a strong case that subprime lenders are “skimming the cream” and their arguments that they need a substantial premium to cover risk are less valid. On the other hand if most of the applications do not turn into loans because the applicant doesn’t proceed with the application, withdraws or doesn’t accept the loan offered then one could argue that the market is working as consumers back away from loans that they do not consider to be a good deal.

A close look at 1999 applications in Iowa shows that there is only a slight difference between prime and subprime lenders in the reasons for non-originations. Loan denials were 54.9% of the prime non-originations while they were 51.3% of the subprime non-originations; loans approved but not accepted were 23.6% of the prime non-originations while they were 23.1% of the subprime non-originations; applications withdrawn were 19.0% of the prime non-originations while they were 19.8% of the subprime non-originations. Only in the case of files closed for incompleteness (a seldom used category) were there significant differences between prime and subprime applications; files closed for incompleteness were 2.5% of the prime non-originations while they were 5.8% of the subprime non-originations. 

In the case of both prime and subprime lenders actual loan denials account for slightly more than 50% of non-originations while active or passive actions by the consumer account for the other half of non-originations.  It would seem to be difficult to make the case that the low origination rates for subprime lenders are caused solely by wise consumer choices on the one hand or solely by lender skimming on the other hand.  As is usually the case, the truth would seem to lie somewhere in the middle.

See Table 14.

Subprime lenders dominate mobile home lending.

Mobile homes located in trailer parks or parked on a plot of land in the country are increasingly the first homes for many low-income households in rural America. There are significant differences between mobile homes and conventional homes that should be addressed by lenders and community groups in Iowa as housing policy questions are addressed. Mobile homes generally depreciate in value, and poor quality and poorly maintained mobile homes depreciate in value rapidly. Because of this the owner of a mobile home generally develops little equity and is usually in a financial position similar to a renter. Borrowing for a mobile home resembles consumer debt, particularly when the interest rates are in the same range as credit card debt.

In contrast well built conventional and modular homes will generally appreciate in value during normal economic conditions. In spite of borrowing a significant sum of money and paying interest charges for the purchase of such a home the owner generally develops some equity over time that can provide the basis for a household’s developing wealth.

While community bankers and other prime lenders do show up as lien-holders for mobile homes in Iowa, the overwhelming majority of mobile home lien-holders are subprime lenders.  In particular Conseco Finance and Greenpoint have provided the majority of all the lending to mobile homes that are located in trailer parks. Because of the way county records are kept lending for mobile homes located in trailer parks can be separated out and studied. On the other hand lending for a mobile home, which the owner place on land, which he or she owns, is not reported separately in either HMDA/LAR or in county records. Although one could safely assume that a high percentage of the HMDA-reported lending for the lenders who most actively specialize in mobile home is in fact for mobile homes regardless of location and ownership of the land.

The tables listing the lien holders for mobile homes located in trailer parks in each county can be found in the Appendix as Table 15.

Abusive land contract “lending” has been documented by other parties in Des Moines and Davenport and appears to have gained a foothold in some rural counties as well. Providing enough evidence to document this phenomenon is, however, beyond the scope of this study. 

Documenting these kinds of abuses as well as the fraudulent and deceptive practices that are the certain hallmark of “predatory lending” is difficult and time consuming work that requires locally based sensitivity. While RHI has collected information that raises questions about these types of practices, we are reluctant to make specific claims until the structures are in place to support victims and provide comprehensive follow-up.

In some of the counties we studied the same names appeared repeatedly on land contract documents indicating the possibility of a “mom and pop predatory operation”. On the other hand an individuals repeated participation in land contracts might have a completely innocent rationale. In at least one of the counties the surnames of one of the parties in the land contracts appeared to be overwhelming of Hispanic origin. Once again this could be a wholly innocent situation or it could be indicative of stories we have heard of people taking advantage of immigrants by offering them poor quality, over-priced homes, with high initial fees and high interest rates on a land contract. In these situations a failure to make a timely payment will result in a rapid eviction from the home, with none of the legal protections that a home purchaser with a mortgage and a deed to the property would have.

While this study did not attempt to document the scope of such activities, persistent anecdotes do demand that state and local officials be aware of such activities and develop policies and laws which help protect innocent participants in fraudulent or abusive land contracts.
 

TABLES FOR ORGANIZING THE DATA

In order to provide formats that will render large amounts of data in a usable form RHI has numbered the tables and then added the initial of the county. Tables 6-BH and 6-M, for instance would provide the same information for Black Hawk and Marshall County. A summary table, which collects the same information for all the counties, would be labeled Table 6-AC and any table that summarizes data from the entire state of Iowa would have the suffix – IA.

Each table’s contents are summarized briefly below.

Tables #1

There are tables numbered 1 for each county in the study. This table provides a list of each subprime lender and their number of applications and loans by type in each county for the years from 1995 though 2000.

Table #2

This table lists every lender that took an application in Iowa in the year 2000. These lenders are ordered by the number of applications taken in Iowa in 2000. The table also includes the number of home purchase loans originated, home improvement loans and refinance loans. In addition the table lists the origination rates for each lender. (Percent of applications that were actually originated)

Tables #3

There are tables numbered 3 for each county in the study. This table details the percentage of prime and subprime home purchase and refinance loans made in each county for the years 1995 through 2000.

Tables #4

These tables numbered 4 show the credit ratings and interest rates of several subprime loan pools that were recently securitized.

Tables #5

These tables numbered 5 tabulate the HMDA loans and mortgage records by lender for each county and calculates the percentage of loans made by subprime lenders

Tables #6

This table numbered 6 based on the data in Tables numbered 5 summarizes the percentage of mortgage records by HMDA reporter vs. non-HMDA reporter for the seven counties.

Tables #7

This table numbered 7 based on the data in Tables numbered 5 summarizes the percentage of HMDA loans and mortgage records by type of lender for each of the seven counties. (Large bank or other financial institution and their mortgage affiliates, thrifts, independent mortgage companies, small banks and credit unions)

Table #8

This table summarizes the loan to value ratios of loans made by large institutions versus small community banks by county.

Table #9

This table summarizes the number of loans sold to GSEs from each county versus the number of loans originated by HMDA reporters and the number of mortgage documents recorded.

Tables #10

These tables list all the institutions that have branch offices in each county. For each institution deposit share, HMDA loan share, mortgage record share, loan to deposit ratio, and last CRA rating and exam date are included.

Tables #11

These tables tabulate the percentage of loans by subprime lenders, by census tract and race of the borrower for each of the three counties in the study with the highest percentages of minority population.

Table #12

This table provides a detailed breakdown of loans by subprime lenders by race and income in Black Hawk County

Tables #13

These tables tabulate by lender the race of the borrower for all loans made by each prime and subprime lenders in 1999.
 

Table #14

This table organizes the reasons for loans not being originated by prime and subprime lender in all of Iowa in 1999.

Tables #15

These tables tabulate the lien holders and number of liens for mobile homes located in trailer parks in each county.

SUMMARY AND RECOMMENDATIONS

RHI’s study of seven Iowa counties with a mortgage data review of the entire state shows that subprime lending has increased substantially in urban and rural Iowa over the past six years. Iowa, like much of the upper Midwest, is home to many strong community banks that fulfill many of the credit needs of their communities. However, subprime lenders are making inroads in our communities. This raises caution flags as we seek to increase home ownership among all Iowans. Subprime loans have higher interest rates and usually higher fees. Borrowers with poor credit records usually can not obtain loans at standard rates and find that subprime loans are their only option.  Unfortunately some types of consumers with good credit and some equity in their homes are targeted for subprime refinance loans. While some subprime loans are in the consumer’s interest, others contain such high rates and fees that they end up harming the borrowers and can rightfully be termed “predatory loans” because they end up putting a borrower’s home in jeopardy.

RHI’s study of Iowa loans confirms some findings that are common to other studies on this issue. Loans by subprime lenders are most commonly entered into by low and moderate income and minority borrowers. African-American, Native American and Hispanic borrowers in particular appear to be the targets of some subprime lenders. Refinance loans are more likely to be made by subprime lenders than home purchase loans. Certain groups of borrowers, such as people buying mobile home are also very likely to receive loans from subprime lenders.

On the other hand, RHI’s study contains the good news that subprime lending has not infiltrated the most rural counties as deeply as feared. This study illustrates that the currently available data often exaggerates the presence of subprime lenders in non-metropolitan counties. There is a significant amount of lending by small prime lenders that do not report their loans to the Federal regulators as part of the Home Mortgage Disclosure Act (HMDA). Their data, therefore, is not reflected in studies based solely on HMDA. RHI believes this is good news because it means that rural Iowa’s home ownership solutions are not dependent just on the large national lenders, but can also be improved by partnerships between affordable housing groups and local community lenders.

During the last decade, the percentage of Americans who own their home has been gradually increasing. Because home ownership provides low-and-moderate-income individuals with a base for developing wealth and increases their civic attachment to their communities, RHI believes that continuing this expansion of home ownership should be an important component of the economic development goals for Iowa communities. RHI brings the following recommendations to the policy makers of Iowa in the hope that we can continue to develop home ownership opportunities for the people of Iowa.
 

RHI believes that financial education and homeownership counseling efforts should be expanded in Iowa.

1. The Iowa Department of Education, the Office of the Iowa Attorney General, the Iowa Jump$tart Coalition, Iowa Home Ownership Education Project, and the Iowa Division of Banking should work collaboratively to provide resources and encourage the implementation of instructional activities needed to support the integration of financial education into elementary and secondary curricula throughout the state.

2. The same organizations should coordinate a separate initiative to fund a new effort by community agencies to conduct a coordinated financial education programs for groups commonly targeted for “predatory lending.”  Predatory loans can include some subprime loans, car title loans, payday loans and abusive contract sales.

3. The same organizations should coordinate an extensive and comprehensive educationally-oriented, public relations campaign, focused on populations targeted for high cost lending, to encourage potential homebuyers to seek pre-purchase counseling before entering into a subprime mortgage, and to educate vulnerable home owners on the dangers of high cost refinance loans.

4. Individual financial institutions, their trade associations, government agencies, Government Sponsored Enterprises, non-profit organizations, and local and regional foundations should work together to fund these coordinated statewide financial education and homeownership counseling efforts at an annual level that substantially expands current efforts.  This coordinated funding effort should be in addition to current local efforts by individual institutions.

RHI believes that that there should be improved data reporting and collection procedures and improved public monitoring and regulation of high cost loans.

1. Iowa should set aside some of the real estate transfer taxes collected in the state (that are not currently dedicated to homeless programs or to the counties) in order to fund financial education and foreclosure prevention efforts and in order to collect the data needed to inform state housing policy. 

2. Iowa should create a system for collecting interest rate and fee information on mortgage loans in order to keep track of levels of abusive lending.   We would recommend that the state study the feasibility of collecting the information contained on HUD-1s from Iowa lenders for all mortgage loans originated in the state.

3. Iowa should pass a state “anti-predatory lending law” that tightens the provisions of the federal Home Ownership and Equity Protection Act (HOEPA) by lowering the interest rate trigger point and adding additional prohibited practices for loans that exceed the interest rate trigger. Prohibited practices could include single premium credit insurance, prepayment penalties, balloon payment or call features shorter than 15 years, and mandatory arbitration clauses. In addition this bill should specify that no mortgage broker may arrange a loan that violates Iowa law for an Iowa consumer. Similar bills are currently either being considered or have passed in many other states.

4. Iowa should establish a statewide system for tracking mortgage foreclosures in order to provide foreclosure prevention assistance and to identify lenders with unusually high rates of foreclosure.

5. Iowa should provide additional funding to the office of the Attorney General in order to crack down on abusive lending that violates the state’s laws. 

6. Iowa should pass legislation to provide for private right of action under state’s Unfair and Deceptive Practices Law. Iowa is the only state that doesn’t have this provision that helps supplement state enforcement by allowing private individuals to file suit against companies that are breaking the law.

7. We recommend that the State Bar Association provide more training for private lawyers to represent consumers who are victims of predatory lending.

8. Iowa should close the current regulatory gap caused by the current $25,000 cap on Uniform Consumer Credit Code application. Because of this cap, home equity mortgages of more than $25,000 escape protection under the Iowa Consumer Credit Code.

9. Iowa should tighten its regulation of contract sales in the state by requiring more information on the true value and condition of the home, an appraisal from a licensed appraiser and by providing more understandable financing information.

10. Iowa should tighten payday lending and car title lending regulation by reducing the amount of the allowed fees, by requiring a waiting period between payday loans and by improving the fee and interest rate information that a customer receives before obtaining such a loan 

11. Iowa should codify that mortgage brokers have a fiduciary responsibility to the borrowers whose loans they arrange.  Borrowers currently assume that brokers are working on their behalf; the law should explicitly state their legal obligation to represent the borrower’s interest.

RHI believes that that there should be improved partnerships between community non-profit groups involved in affordable housing and socially responsible lenders.

1. In conjunction with community groups Iowa financial institutions should encourage and expand down payment assistance programs, homebuyer counseling programs, and financial education programs by financially supporting these efforts themselves and by supporting efforts to attract the foundation and Federal dollars available for these programs.