Predatory Lending

David · Joined: 19 May 2004 Posts: 754 Location: Atlanta, GA

The term "predatory lending" comes up a lot these days, but as somewhat on an outsider to the industry, I don't know too much about it. I assume it means giving a loan to someone in a way where you know they will not be able to honor the terms, and you get all the money back. I am hoping to create a discussion here about:
1) Signs you are dealing with a predatory lendor
2) Common types of predatory lending

Nikko · Joined: 20 Jan 2005 Posts: 536 Location: Northern CA

Predatory lending in most circles implies to charging more as a broker than what that particular state allows. Example: Florida has a fee cap of 7.99%.

Haplo · Joined: 20 Jan 2005 Posts: 2422 Location: Springfield, IL

It also applies to selling something to someone that they don't need. For example, refinancing a 30 year fixed at 6% to a 3/1 arm at 6%, and no other benefit to the loan. Basically, the only thing you're accomplishing is getting more money in the pocket of the broker.

towanda10 · Joined: 28 Jan 2005 Posts: 22

I started my illustrious career in the mortgage business with one of the more 'famous' predatory lenders, Conseco Finance, who have since gone bankrupt.
We were selling sub-prime loans to 'A' paper borrowers and charging them 5 pts to do so. In other words, clients could already be in a 7-8% loan (this was in '01) and we'd refi them into an 11% rate!!!!!!!! Your next question is going to be "How did people let you do that?". The answer is simple, if you are paying off high interest credit cards, you can still show a 'savings' in payments!!!!!!!!!!!!
THAT'S predatory lending. I lasted 3 months, or as long as it took me to go out on my own.
That same year, I attended a AZ MBA luncheon where predatory lending was discussed and it was revealed that it was the 'BIG GUYS' (fill in the blank of the biggest banks in your town) that were being sanctioned and fined for predatory lending!!!!!!!!!!!!!!!!!!!!!!! The point being, that everyone is usually looking at the broker, but more often than not, it is the well-known lending institutions that may be at fault.

towanda10 · Joined: 28 Jan 2005 Posts: 22

Full disclosure of costs entatiled in the mortgage transaction are required to be supplied to the borrower within 3 days of application. If this doesn't occur, or you get ANY kind of mumbo jumbo about the fees, or a failure to answer your questions, get suspicious. Although I've heard many complaints from clients who complain that other brokers won't discuss the Good Faith Estimate (GFE) with them. I, on the other hand, REQUIRE my clients to go over the GFE with me line by line, explaining what everything is for and who is getting paid what.
Another time to be suspicious is if you are being told "not to worry about the rate. You can't 'eat' the rate or take it to the grocery store to buy food. You can only by groceries with the money we are saving you every month!" That was the convoluted sales spiel we used at Conseco and, unfortunately, it does confuse people enough that many believe that!!!!

David · Joined: 19 May 2004 Posts: 754 Location: Atlanta, GA

From the little I know about you, I think you are a good LO that people can trust towanda10. People like you help improve the reputation of your line of work.

towanda10 · Joined: 28 Jan 2005 Posts: 22

Thanks, David, I work VERY hard to 'de-mystify' the lending process and have my clients walk away with enough information that they cannot be taken advantage of again (at least if they're paying attention!!).
I couldn't sleep nights at Conseco, so had to go out on my own, where I could supply my clients with what they needed, NOT what my boss needed me to sell!!!!!!! :)

chow · Posted: Thu Feb 03, 2005 10:21 am Post subject:

I don't ever think I saw a loan I could refi after Conseco got done with them! The property was usually over appraised by 45% and the people thought they had a 100% loan!

I love the 3rd mortgages I find on occassion, the doublewide with a value as high as my stick built home.....don't even get me started. When Conseco bought our lending company, I took a weeks vacation, and then found another place to hang my hat!

Now to be honest with you, I am working on a "little" issue for a friend. The appraisal and disclosures are all a mess. And people wonder why we have so many repo's. :oops: :evil: :twisted: I asked for all of his copies and his closing package-oh my gawd. We weren't in it 30 seconds, and my husband saw the drewl dripping off our court happy fangs!

(no, I am not opposed to watching evil originators and appraiser's sink in the muck of orange jumpsuits at campo de federal)

I'll give you guys one guess where the mess will end up at.......

Mac · Joined: 04 Feb 2005 Posts: 276 Location: Knightdale, NC

David, predatory lending comes in many practices.

It could be the fees charged. It could be the interest rate. It could be in the type of loan (short term ARMs on retired folk comes to mind). It also use to have add-ons in the loan like Mortgage life insurance paid through the proceeds of the loan. this insurance was some of the worst stuff available and rarely if ever did the borrower justice for the cost.

Typical signs of a predatory lender include:
Lack of disclosures to the borrower prior to closing.
No legal representation at closing for the borrower where the LO closes the loan.
The same borrower being reclosed into another sub-prime loan with maxed out fees in short periods of time (12 months or less)

David · Joined: 19 May 2004 Posts: 754 Location: Atlanta, GA

Mac wrote:
Typical signs of a predatory lender include:
Lack of disclosures to the borrower prior to closing.
No legal representation at closing for the borrower where the LO closes the loan.
The same borrower being reclosed into another sub-prime loan with maxed out fees in short periods of time (12 months or less)

This is good information. It is not always easy for people to realize what's going on sometimes. I might add a couple of other signs:
1) The LO asks you for a loan for bus fare
2) The "office" is located in an abandoned house
3) When you ask for a Truth in Lending statement, the hold up both of their hands and form a "V" with their fingers as they say "I swear".

Nikko · Joined: 20 Jan 2005 Posts: 536 Location: Northern CA

David, you rascal. You made a funny :)

Mac · Joined: 04 Feb 2005 Posts: 276 Location: Knightdale, NC

David, I am sorry you took my response so flippantly. I thought you had asked a legitimate question and wanted a legitimate answer.

I reckon I'll know better next time.

chow · Posted: Wed Feb 09, 2005 12:12 pm Post subject:

Mac, I don't think David ment any disrepect with his post. He's really trying to learn. That is the first "funny" I've seen him make. You have to admit there are many issues in a loan that could be "predatory."

I think it's interesting that the opinion is so broad with many a different viewpoint. Even more interesting is, depending on the loan and situation-everyone is right!

Mac · Joined: 04 Feb 2005 Posts: 276 Location: Knightdale, NC

Chow, no grief. David and I got everything righteous last night by private messages. I had jumped the gun so to speak with my response and I told him that.

chow · Posted: Wed Feb 09, 2005 2:38 pm Post subject:

:P group hug! I love hugs!!!!! :mrgreen:

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