According to many experts, the economic meltdown our country is now experiencing is due, in large part, to a virtual collapse in our housing industry. From all accounts, the billions of dollars being expended by the U. S. Government to bail out Fannie Mae, Freddie Mac and others is the result of the failure of bad loans. The question may reasonably be asked, are unscrupulous lenders to blame, or are irresponsible borrowers at fault? And just what is a ‘predatory loan’?
Wikipedia defines the term ‘predatory loan’ to mean the practice of a lender convincing a borrower through deception to agree to an unfair and abusive loan. As long ago as September of 2002, the U.S. Department of Housing and Urban Development (HUD) issued a directive to all companies that were in any way involved with mortgage loans through HUD that “…national attention has been drawn to the devastating impact of predatory lending on families who are victimized by …unscrupulous sellers, appraisers, real estate agents, mortgage originators or investors…” It warned that fraudulent lenders would, after making the loans, then pawn off those predatory loans on others in the mortgage industry who knew nothing of the acts of deception.
A recent HUD/Treasury National Predatory Lending Task Force issued a report which found that predatory lending occurred when creditors, brokers, home improvement contractors and others in the business of arranging or making loans involving a home “engaged in deception or fraud, manipulating the borrower through aggressive sales tactics, or taking unfair advantage of a borrower’s lack of understanding about loan terms.”
Consider the following: a company in the business of extending loans visited a combat wounded veteran at a VA Hospital to conduct a closing on a loan. The company had decided that the wife of the man, who was a quadriplegic, did not have sufficient credit worthiness, so they did not include her on the application and they did not require her to sign the note, but they did require her to sign over her interest in their marital home to secure the loan. The husband’s income was sufficient to pay the loan, but he was on his death bed and his life expectancy was limited. The ability of the wife to make the payments in the likely event that the man died was not even considered. After his death months later, the monthly mortgage payment was more than she and her two daughters made put together. Should that loan have been made? Was that a predatory loan?
Or this: a husband and a wife owned a triple wide mobile home which sat on an acre of ground in a not so desirable section of town. The land, with the trailer on it, was appraised by the County at about $60,000. An appraisal was obtained to justify a loan of $130,000. When a major illness struck the primary bread winner, and the loan went into default, the borrowers were unable to make payments. The loan was foreclosed upon but the lending institution had no chance to get even half of its money back because the collateral was woefully short of adequate. Should that loan have been made? Was that a predatory loan?
Statistics show that those who would ‘prey’ on unwitting borrowers target the elderly homeowners with equity in their home, or those with disabilities, or those in the lower income brackets who fall into what is called the ‘sub prime’ category. The term ‘sub prime’ refers to the fact that this group of people will not qualify for the ‘prime’ rate of interest and usually takes whatever it can get. Such loans are usually accompanied by high interest rates, high fees, pre paid credit insurance, balloon payments, ‘forced placed’ insurance (usually to a subsidiary or an affiliate at an exorbitant rate), mandatory arbitration (to prevent a borrower from going to court), pre payment penalties and kick backs to mortgage brokers, who earn their money by making mortgages happen any way they can.
On October 6 of last year, Bank of America, as the successor to Countrywide Mortgage Company, entered into a settlement with the Attorney Generals from 11 states, including Florida, by which billions of dollars in relief will be made available to homeowners who were victimized by such practices. The most significant right a delinquent borrower now has is the right to demand that the lender make a good faith effort to work things out so that the loan can be kept in place, whether that means putting the moneys due at the end of the note, reducing the interest rate or eliminating some unfair charges, before filing a lawsuit to foreclose upon the property.
Our country is now experiencing a financial crisis of an unprecedented magnitude. If you are faced with the prospects of losing your home, or if you are being besieged by dunning creditors, whether they be mortgage holders, credit card companies or others, seek assistance from an attorney, and if you can’t afford one, contact your local legal aid program for guidance.
The foregoing was provided by attorney Pierce Kelley, who has recently opened an office in Cedar Key. He was formerly a staff attorney with the Three Rivers Legal Services, Inc., which serves seventeen (17) counties in North Florida.