Unfortunately, many of these brokers/lenders are vicious, heartless people looking only to rake an unsuspecting, uninformed applicant across the coals in order to make a buck.
Either they slip in random and excessive fees or points, sometimes accounting for 5% or more of the loan, or produce lending rates that are well above prime, or, by contrast, push borrows into sub prime loans (usually ARMs, interest only, or negative amortization loans) that carry exorbitant prepayment penalties thus cornering a borrower and making conversion to a better suited loan costly, difficult, or even impossible. It’s been reported that some 80% of sub-prime loans (which accounted for 80% of all loans in 2005) carry significant prepayment penalties.
The frequency and cost of predatory lending practices are not insignificant. A
Sadly, the people who are most often and appreciably taken advantage of are also the most likely to suffer dramatic losses from these predatory lending practices. The articles listed at the bottom of this post chronicle countless cases where unscrupulous lenders or mortgage brokers ran roughshod over every one from first time home buyers (some were the first in their families) to the elderly, to non-English speaking citizens, and even the legally blind.
One can certainly say “oh well… buyer beware” but lets face it, were not talking about buying a used car. For most of us, our homes are the single most significant asset we will ever manage and the terms of the associated debt (and the debt acquisition), if not well suited to or understood buy the borrower, can prove have disasterous consequences.
Now that the housing downturn is in full swing, we are about to feel the real fallout of an explosive combination of runaway markets, poor lending standards and criminal lending tactics. Many people are already losing their homes, as well as whatever investments (down payments, etc.) they had in them, as the volume of foreclosures across the country continues to steadily rise.
One bright side though, it seems that many states are now passing pro-consumer laws that will help restrict some of the most egregious lender and mortgage broker abuses.
Hopefully, better protection for consumers, combined with a healthy real estate downturn (which predatory lenders, ironically, helped to engineer in the first place) will drive many of these ruthless bastards out of business for good.
Predatory Lending Findings
Predatory Mortgage Lending
Coalition Calls for Predatory Lending Legislation to Protect Minority Homebuyers
Stolen Wealth Report
Legislators optimistic about chances of predatory-lending bill
Realty spotlight shines on minorities
Borrow Wise Initiative Targets Predatory Lending
Family May Lose Home Thanks To High-Interest Loan
Senate approves crack down on predatory lending
State needs strong laws on predatory lending
Predatory lending displacing homeowners, destroying their dignity
Predatory lending hurts minorities