Taming the Predators
The practice of predatory lending strips billions of dollars in home equity from low-income and minority consumers each year, according to the Center for Responsible Lending, a nonprofit, nonpartisan research and policy organization.
Consumer groups try hard to draw attention to this problem. But it's hard to get sympathy or needed federal legislation enacted for low-income borrowers or people with poor credit because, often, the sentiment is that these folks get what they deserve.
That may be changing.
In one new development, the Opportunity Finance Network, a national organization of 167 financial institutions, has pledged to originate $1 billion or more per year of mortgages to subprime borrowers (typically people with insufficient credit histories or a record of blemished credit) by 2010 to combat predatory lending.
"We are developing a national responsible subprime mortgage platform to challenge predatory lenders who are stealing wealth from homeowners," Mark Pinsky, president and chief executive of the network, said during a teleconference about the new initiatives.
"We want to demonstrate that it's possible to be a responsible subprime, a fair lender," Pinsky said.
In other news that I hope will also change how lenders deal with borrowers, Ameriquest Mortgage Co., the nation's largest subprime lender, has agreed to pay $325 million ($295 million to compensate borrowers and $30 million to reimburse states for fees and legal costs) and refrain from practices that state law officials allege were predatory.
Consumers in 49 states and the District of Columbia who obtained loans from Ameriquest from January 1999 through December 2005 will be eligible for some restitution. Virginia was excluded from the agreement because Ameriquest did not make loans in that state.
According to the Pennsylvania attorney general's office, Ameriquest employees deceived thousands of consumers by using high-pressure tactics to boost their monthly quotas and commissions. Consumers claimed the company misrepresented the actual amount of interest they had to pay, inflated home appraisals that resulted in owners getting loans they couldn't afford, and failed to clearly disclose fees or penalties associated with paying the loans off ahead of schedule.
As part of this multistate settlement, Ameriquest denied any wrongdoing but agreed to a set of standards that the states expect other mortgage lenders to follow. Here are some of the provisions from the settlement:
· Ameriquest must provide clarity to borrowers orally and in writing about all loan terms, including interest rates, fees and prepayment penalties.
· The lender cannot enter into any nonprime refinance loan that does not provide a benefit to the borrower.