Subprime lenders and their lawyers and lobbyists are in an awkward position. They worry that the current uproar over reports of alleged abusive lending practices will lead to onerous legislation. But they also worry that advocating caution will make them look like apologists for exploitative lending.
"Predatory lending is this year's privacy issue," said Larry Platt, a law partner at Kirkpatrick & Lockhart in Washington. "It's the issue that's hard to oppose, and all the federal and state agencies want to be seen as the protectors of the consumers."
Predatory lending has become the focus of three bills in Congress, a joint task force between the Departments of the Treasury and Housing and Urban Development, and numerous investigative articles in the media. Observers like Mr. Platt fear that regulation passed in the current environment will result in bad public policy.
"These are complex issues and it's important that we not create a regulatory posse that wants to hang private enterprise before a well-thought-out review of the issue," he said.
The predatory-lending debate is a classic example of the collision between public and private goals. Few would disagree that homeownership should be available to every American, but lenders say that their attempts to realize that goal while still delivering profits to their shareholders can hurt their public image.
While bringing capital to people who cannot get it represents a public good, banks and lending institutions, as businesses, must be allowed to price for risk, said David O. Beim, a professor at Columbia Business School.
Mr. Beim said mortgage lending represents a "morally ambiguous" area where government and private enterprise have come together for similar yet disparate goals.
"It's hard to distinguish between the bank that lends to foreclose and the bank that is simply trying to make more credit available under the Community Reinvestment Act," Mr. Beim said.
"Can government on one hand force banks to lend to riskier borrowers but then say they can't do it in predatory ways? Are Junk Bonds predatory? You have to draw a line - you have to be sure what you mean when discussing predatory lending," he said.
To be sure, there have been some serious allegations made against subprime lenders. First Alliance Corp. of Irvine, Calif., recently filed for bankruptcy after several lawsuits and media accounts accused the company of using misleading sales tactics. And Capital City Mortgage Corp. of Washington, D.C., is fighting a lawsuit that charges the company with taking advantage of inner-city minorities by making loans intended to bring about default and foreclosure.
Still, some believe the current movement against predatory lending has brought an unfairly sweeping denouncement of an industry that for the most part operates under fair, legitimate, and sound business practices.
"I think that the banking industry in general has done a great service by extending credit to folks who haven't had it before," said Pam Martin, director of regulatory relations and communications of Robert Morris Associates, a lender trade association. "There are some questionable lending practices occurring, but the good and the bad get lumped together, and that's unfortunate."
More to the point, many involved in the debate, from Fannie Mae and Freddie Mac officials to retail lenders, want one point to be heard above the collective din: subprime is not synonymous with predatory lending.
"Subprime lending is about expanding to people with bad credit or no credit who are viewed as having a greater risk," Ms. Martin said, "and that's not predatory lending."
"There is a perception out there that lenders make money on foreclosure, [but] they do not," said Marty Cohen, vice president for finance and investor relations at Delta Financial Corp. of Woodbury, N.Y., which has been the target of several lawsuits over its lending practices.
"We do everything we can to avoid foreclosure and originate good, quality loans. Nobody wins with a foreclosure," Mr. Cohen said.