Learn Lending Basics to Avoid a Predatory Mortgage

(The complete study, "The Best Value in the Subprime Market: State Predatory Lending Reforms," is on the center's Web site, http://www.responsiblelending.org/ .)

The center described some of the most common of the practices it considers abusive:

· Loan flipping: The borrower is "flipped" by a lender who insists that the consumer refinance a current loan, sometimes over and over, primarily for the purpose of generating more fees for the lender.

· Unnecessary products: The lender insists that the consumer buy products that are not useful, such as credit life insurance. Once again, this serves primarily to increase the lender's profit.

· Mandatory arbitration: The lender requires that a borrower go to arbitration if there are any complaints, instead of allowing the borrower the option of taking the lender to court. Often, this arbitration must take place in the home state of the lender, which may be thousands of miles away from where the borrower lives.

Unscrupulous lenders have long made mortgage loans where the terms of the loan were designed for failure -- and for foreclosure. Once the home is foreclosed upon, the lender starts all over again. It is a vicious cycle with little or no end in sight.

The Center for Responsible Lending concluded that its findings have two significant implications for state and federal policymakers who are "grappling with the best way to prevent predatory lending." The center's study said, "First, the findings suggest that strong state laws like those in place in New Mexico, Massachusetts and North Carolina can serve as successful models.

"Second, the findings call into question the advisability of federal proposals that would nullify state efforts and substitute a weak national standard. . . . From a homeowner's perspective, it appears that mortgages protected by strong state laws may be the best deal in the real estate market."

But laws alone are not enough. Consumers must understand that they must protect themselves. They must learn the basics of mortgage lending as well as what to avoid. CasaNuevaHouston, a Texas organization that assists home buyers, mostly Latinos, recently published a Home Buyer's Bill of Rights, which lists many of the things house-hunters should expect. (See box at left.)

In addition to knowing those rights, remember: If you are looking for a mortgage loan, you must shop around. And if you qualify for a loan, you must also be comfortable that you can make the monthly payments on a timely and regular basis.

Benny L. Kass is a Washington lawyer. For a free copy of the booklet "A Guide to Settlement on Your New Home," send a self-addressed stamped envelope to Benny L. Kass, Suite 1100, 1050 17th St. NW, Washington, D.C. 20036. Readers may also send questions to him at that address.