FROM THE OFFICE OF PUBLIC AFFAIRS

I am pleased to be here for the Baltimore Public Forum on Predatory Lending. I am particularly honored to be appearing here in my hometown with Senator Sarbanes, Senator Mikulski, and Mayor O'Malley.

Senator Sarbanes has worked with the Treasury on many critical issues to expand access to capital and financial services in all of our communities, including ensuring that the Community Reinvestment Act remains strong and vital in the 21st century. Just last month, the Senator introduced an important piece of legislation to address abusive practices and predatory lending. This week, Senator Sarbanes introduced important legislation to help bring the unbanked into the financial mainstream. I was pleased to join Senator Sarbanes in the fall at the Lexington Market post office, where we inaugurated a pilot postal ATM program aimed at expanding affordable access to financial services in lower income areas.

Senator Mikulski has been a strong advocate for community development initiatives in Maryland and throughout the country. She has been a strong supporter of Treasury's CDFI Fund. It was Senator Mikulski who called for the Administration to seriously study the issue of predatory lending and to report directly to her and to Congress on a plan to combat predatory practices. The leadership of Maryland's senators has been essential in helping to bring economic opportunity to more Americans.

At Treasury, we believe that one of the most important parts of our effort is to ensure that no American is left behind in the great economic success of our nation. We at Treasury and HUD care deeply about these issues. That is why, at Senator Mikulski's request, we are sending Congress a report next month that takes a careful look at the important matters raised in these hearings and that provides a plan to combat predatory practices. Today's forum provides important input to us as we develop this plan.

Access to capital has grown at a remarkable rate during this Administration. Last month, Treasury released a study showing that the Community Reinvestment Act is helping to increase competition in lending to lower-income borrowers and communities across the nation. In Baltimore, the progress made by banks and thrifts in CRA lending was particularly encouraging. The study found that between 1993 and 1998, lenders covered by the CRA increased the share of their mortgage lending going to Baltimore's lower-income borrowers and communities, from 24 percent of their originations to 30 percent. This growth was twice the national average over that same period, and helped to significantly expand access to prime mortgage credit for underserved borrowers in Baltimore.

At the same time, the report that HUD is releasing today details significant growth in subprime lending in Baltimore over the past several years. Ten years ago, many borrowers were unable to access credit at any price. Today, due to the growth of subprime lending, more lower-income and minority families have the opportunity to buy homes, to refinance their debts at lower costs, and to finance educational, medical, and other important expenses.

As we continue to work to expand the availability of credit in both the prime and subprime markets, however, we also must work to prevent abusive practices. What we have found in our forums, unfortunately, is that predatory lending does exist. All too often abusive practices are targeted at the most vulnerable among us -- elderly Americans and low-income Americans. This makes it ever more vital that we address these issues.

All Americans deserve fair access to capital. A subprime loan is a good option when the alternative is no access to credit. It is a poor option when the borrower should be qualifying for prime credit. Research suggests that as many as 30 percent of subprime borrowers may actually qualify for prime credit. And a subprime loan is an unacceptable option when it comes with predatory terms or inadequate disclosure. We must not let the abusive practices of some lenders undo the enormous progress that families have made thus far. Abusive practices should have no place in our credit markets.

One special focus of today's forum is the effects of predatory lending practices on neighborhoods. As a daily reader of the Baltimore press, I have seen that these practices, unfortunately, do exist in Baltimore. One particular problem that is all too prevalent in Baltimore and, I fear, across the nation, is the flipping of properties at inflated appraisals leading to an undue burden on home buyers and an increased risk of foreclosures. This leaves too many individuals and neighborhoods at risk in Baltimore. We must address this unfair and abusive practice.

The high foreclosure rates in some Baltimore neighborhoods threaten to undo the enormous progress that has been made over the last decade in rebuilding homes and revitalizing Baltimore's neighborhoods. As Vinnie Quayle, a member of our task force from Baltimore's St. Ambrose Housing Aid Center has noted, the number of foreclosure petitions filed for homes in the Baltimore area jumped from 1,900 in 1995 to over 5,000 in 1999. In a thriving economy, these figures should worry us all. We hope to learn today what role abusive lending practices may play in fueling these foreclosures, and what we can do to curb these practices and restore stability to more of Baltimore's neighborhoods.

Growing up in Baltimore, I have had the opportunity to see first hand the rebirth of a number of Baltimore's neighborhoods. I have also witnessed first hand how organizations like Baltimore's Enterprise Foundation have done tremendous work to bring capital back to Baltimore neighborhoods that had been in decline. That is why, to help organizations like this to revitalize low-income neighborhoods, the Administration has been pressing for an increase in the Low Income Housing Tax Credit.

We cannot allow the adverse effects of predatory lenders to undo the efforts of those who have worked so hard to bring these areas back to life. I look forward to hearing both your experiences and your ideas as to how we can best combat abusive lending practices while preserving the benefits of expanded capital access for all our communities.