Saturday, May 13, 2006

"The terms are fine... please sign at the dotted line."

Everyday, thousands of Americans find themselves relying on mortgage lenders and brokers in order to navigate the myriad of loan options and terms now available.

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 California study by The California Reinvestment Committee (CRC) found that over a third of borrowers may have been the victim of predatory lending tactics. Its also, been reported that homeowner lose and estimated $9.1 billion each year as a direct result of predatory lending.

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.

Interesting Links:

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