Predators have come to the party wearing a variety of hats, yet their intent clearly is common.
Webster’s gives the definition of "predatory" as "relating to, or practicing plunder, pillage or rapine … showing a disposition to injure or exploit others for one’s own gain … "
In the home mortgage business, predators historically have jockeyed to the most vulnerable rung of the housing ladder, seeking to "dine and dash" with the least suspecting group of borrowers having to pay the bill.
The past few years, more and more borrowers were hit with loan presentations that seemed too good to be true. It’s been a big piece of the current mortgage mess. If you don’t get loan jargon or don’t speak English as your primary language, you can easily find yourself as a target. That’s why housing officials are now pushing for more safeguards against predatory lending, hoping to curb the quick-hit artists who have no intention of spending years in the home-mortgage industry.
Put yourself in a pair of "fast buck" shoes for a moment and think about the possibilities.
First, you have a huge group of "last-time buyers" who are not familiar with the terms or the plethora of loan programs available today. These folks have had no need, nor interest, in researching loans the past 20 years because they’ve had no intention of moving. They have surfaced to find the current maze of loan opportunities that are foreign to their borrowing background.
And, speaking of foreign, the National Association of Realtors reports that nearly one-third of all first-time home buyers were members of a racial or ethnic minority, indicating the huge language challenge for real estate agents and loan reps.
However, the language challenge is not reserved for first-time buyers. I recently interviewed a consumer, a native of Honduras, who was pressured into abandoning his fixed-rate loan for a higher adjustable-rate deal that left him with a lump-sum payment of $85,000 after nearly 20 years of payments on a $95,000 loan.
"Eduardo" is not actually identified here because of privacy concerns. Authorities are reviewing his case with his lender.
"I have to think my Latino background had something to do with it," Eduardo said. "She just kept pressuring me and pressuring me with deadlines. She said if I signed by the end of the month I would be able to save a mortgage payment."
Eduardo was seeking to lower his monthly mortgage payment of $898 plus pay off approximately $6,000 in consumer debt. He has a good job with the U.S. Postal Service and makes timely payments on all money he owes.
"The loan person continued to tell me that I was the only one of her clients who was second-guessing this deal," Eduardo said. "I was skeptical and kept insisting that all this be put in writing so I could really understand it.
"But she kept telling me this was the best way for me to save a lot of money. One day she came over with the paperwork for me to sign. I ended up signing it. She didn’t break my hand or anything, but there was a lot of verbal pressure."
Eduardo’s monthly payments zoomed to $1,167 a month. He also discovered that if he refinanced or prepaid his loan within the first three years, he would owe a sum equal to six months of payments.
Eduardo’s case, and others like it, has become one of the hottest topics in housing today. In a report on abusive lending, the federal government recommended that increased consumer education and disclosures about the lending process would cut down on abusive lending. Among other measures, the report also called for bans on harmful loan sales practices that do not consider the consumer’s ability to repay a loan; a ban on lump-sum credit life insurance; and, limits on points, prepayment penalties and fees that can be financed with a home loan.
It used to be that intentional deception centered on equity-skimming con artists who assumed mortgages and quit making payments. When the mortgage holder foreclosed on the loan, the lender sought full payment from the initial borrower — typically an innocent veteran or senior who was left holding the bag.
Solutions started to arrive more than a decade ago to cover specific hurts. For example, government loans used to be fully assumable, with virtually no requirements. Now, there are more stringent guidelines.
Freddie Mac, HUD, Fannie Mae, the Mortgage Bankers Association of America and the National Council on Economic Education are among the groups who have jumped on board to educate potential home buyers about lending abuses and teach them homeownership skills.
This is not about investment portfolios or extra cash. It’s about keeping the scammers away from a consumer’s basic shelter. Predatory lending is a despicable practice and a despicable crime.
To get even more valuable advice from Tom, visit his Second Home Center.
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