Kinky Mortgage Loans & Predatory Lending: It's A Crime - But It's Legal?
George Boelcke CCP
April 23, 2007
The headlines speak for themselves: Mortgage crisis, a drop in the median sale price of homes for the first time since 1968, tightening lending standards, more than 44 mortgage lenders closing their doors, or the devastating stories from Detroit alone, where one out of ever 21 mortgages was foreclosed last year.
But we haven’t hit bottom yet, as there are still 1.8 million adjustable-rate mortgages which will reset to higher rates between now and the end of next year. It’s a stupid question, but I wonder how many of these loans were sold on the “today” payment, without any discussion or disclosure of what the impact would be a year or two down the road, should interest rates increase?
True, not every lender operates on that basis – but many did, or we wouldn’t be in this position. And yes, there are companies in the financial services field who actually make a difference, do the right thing - the right way by putting their clients first. One great example is Primerica Financial Services (a division of Citigroup), and the reason for their special section in the It’s Your Money book. But first, let’s back up a minute and talk about another group of people in a much different field.
Cops make their best efforts, each and every day, to protect us and to catch criminals. A part of that effort involves setting up sting operations. All of these are set-ups of one kind or another to catch bad guys committing crimes. The criminal still makes the decision in choosing to break the law, but there is something called entrapment, and when that line is crossed - it’s illegal.
Translation: Taking temptation just a bit too far is illegal. Cops are not allowed to cross a certain line, and when they do, the criminal gets off.
Yet there are many mortgage lenders and brokers who offer payments on mortgage loans that don’t even cover the interest each month. Yes, the client signs the papers, but isn’t this the financial equivalent of entrapment?
Are some lenders and mortgage brokers not trapping people into loans, subprime deals or refinance choices they can’t possibly pay down the road? Are some of these companies not omitting information, options, warnings, comparisons or other choices? Or simply selling mortgage loans families wouldn’t really qualify for, and forcing them into huge future risks, increasing payments, or creating situations where loan balances actually go UP and not down, until the day these family likely or potentially lose their home?
I would suggest that perhaps this is also a form of entrapment, but more significantly and more damaging than the line police officers cannot cross. If not, tell me how this is any different? Tell me why THIS is legal?
Whether it’s pick a payment, teaser rates or interest only payments, call them whatever buzzwords you want, I believe that may times this is also entrapment – pure and simple.
If that’s true, it’s not a stretch to suggest it is also a large part of the reasons why we are currently in a wave of 2.2 million potential foreclosures, according to the Center for Responsible Lending. These aren’t just statistics, but REAL families and REAL stories. Never mind the estimated $169 billion in equity that will be wiped out, according to one study. After all, this is killing the dreams and hopes of families, taking away their equity and destroying their credit scores for years to come.
So let me get this stupidity straight: Someone who’s criminally inclined immediately gets off scot-free. Yet someone with nothing but hopes and dreams, who puts their trust in a lender to help them, to properly qualify them, and to set up the loan the right way, gets ripped off and potentially stripped of their home in a foreclosure, and that’s just fine and perfectly legal?
What am I missing? Isn’t there something wrong here? Hello? Or in the words of a powerful quote from Senator Sherrod Brown (D-Ohio): “We’ve heard one heartbreaking story after another of borrowers with limited incomes being sold mortgages they could not afford.”
Oh, and if you think this doesn’t affect you, think again. This is one issue which is not unfolding in a vacuum. Even if you’re not involved – you’re involved:
As a homeowner: Studies show that every foreclosure in your community drops your house value by around one percent or more.
As a tax payer: The government is considering new regulations or possibly a bailout package. Whether you believe that’s warranted or not, get in touch with your Senator. It’s your tax money – but then it’s also impacting your neighbors, your community and your home.
If you’re looking to buy a home: The lending criteria just got a whole lot stricter when it comes to your FICO score, proof of income and other documentation you’ll need.
If this is already impacting you: Contact your lender. Avoidance makes things worse and not better. If you’re about to have a problem, pick up the phone – today! 50% of people don’t ever contact their lender before the start of foreclosure and that’s just stupid. Ask questions, get help, get pro-active – fight, don’t hide!
But we haven’t hit bottom yet, as there are still 1.8 million adjustable-rate mortgages which will reset to higher rates between now and the end of next year. It’s a stupid question, but I wonder how many of these loans were sold on the “today” payment, without any discussion or disclosure of what the impact would be a year or two down the road, should interest rates increase?
True, not every lender operates on that basis – but many did, or we wouldn’t be in this position. And yes, there are companies in the financial services field who actually make a difference, do the right thing - the right way by putting their clients first. One great example is Primerica Financial Services (a division of Citigroup), and the reason for their special section in the It’s Your Money book. But first, let’s back up a minute and talk about another group of people in a much different field.
Cops make their best efforts, each and every day, to protect us and to catch criminals. A part of that effort involves setting up sting operations. All of these are set-ups of one kind or another to catch bad guys committing crimes. The criminal still makes the decision in choosing to break the law, but there is something called entrapment, and when that line is crossed - it’s illegal.
Translation: Taking temptation just a bit too far is illegal. Cops are not allowed to cross a certain line, and when they do, the criminal gets off.
Yet there are many mortgage lenders and brokers who offer payments on mortgage loans that don’t even cover the interest each month. Yes, the client signs the papers, but isn’t this the financial equivalent of entrapment?
Are some lenders and mortgage brokers not trapping people into loans, subprime deals or refinance choices they can’t possibly pay down the road? Are some of these companies not omitting information, options, warnings, comparisons or other choices? Or simply selling mortgage loans families wouldn’t really qualify for, and forcing them into huge future risks, increasing payments, or creating situations where loan balances actually go UP and not down, until the day these family likely or potentially lose their home?
I would suggest that perhaps this is also a form of entrapment, but more significantly and more damaging than the line police officers cannot cross. If not, tell me how this is any different? Tell me why THIS is legal?
Whether it’s pick a payment, teaser rates or interest only payments, call them whatever buzzwords you want, I believe that may times this is also entrapment – pure and simple.
If that’s true, it’s not a stretch to suggest it is also a large part of the reasons why we are currently in a wave of 2.2 million potential foreclosures, according to the Center for Responsible Lending. These aren’t just statistics, but REAL families and REAL stories. Never mind the estimated $169 billion in equity that will be wiped out, according to one study. After all, this is killing the dreams and hopes of families, taking away their equity and destroying their credit scores for years to come.
So let me get this stupidity straight: Someone who’s criminally inclined immediately gets off scot-free. Yet someone with nothing but hopes and dreams, who puts their trust in a lender to help them, to properly qualify them, and to set up the loan the right way, gets ripped off and potentially stripped of their home in a foreclosure, and that’s just fine and perfectly legal?
What am I missing? Isn’t there something wrong here? Hello? Or in the words of a powerful quote from Senator Sherrod Brown (D-Ohio): “We’ve heard one heartbreaking story after another of borrowers with limited incomes being sold mortgages they could not afford.”
Oh, and if you think this doesn’t affect you, think again. This is one issue which is not unfolding in a vacuum. Even if you’re not involved – you’re involved:
As a homeowner: Studies show that every foreclosure in your community drops your house value by around one percent or more.
As a tax payer: The government is considering new regulations or possibly a bailout package. Whether you believe that’s warranted or not, get in touch with your Senator. It’s your tax money – but then it’s also impacting your neighbors, your community and your home.
If you’re looking to buy a home: The lending criteria just got a whole lot stricter when it comes to your FICO score, proof of income and other documentation you’ll need.
If this is already impacting you: Contact your lender. Avoidance makes things worse and not better. If you’re about to have a problem, pick up the phone – today! 50% of people don’t ever contact their lender before the start of foreclosure and that’s just stupid. Ask questions, get help, get pro-active – fight, don’t hide!
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