Predatory borrowing is an unfair, deceptive, or fraudulent cheating of several lenders during the loan origination process. Although there is no legal definition in the United States for predatory lending, the audit report on lending of predators from the inspector general's office of the FDIC broadly defines predatory borrowing as "imposing unfair and harsh loan terms on borrowers". Although there are laws against many specific practices that are generally identified as predators, various federal agencies use this phrase as a term that covers all the particular illegal activities in the lending industry. Predator borrowing should not be confused with malignant mortgage services that are unfair, deceptive, or fraudulent practices of lenders and service agents during the loan or mortgage repayment process, once the loan begins.
An undisputed definition of this term is "the practice of lenders who deceitfully convince borrowers to agree to unfair and harsh loan terms, or systematically violate those provisions in ways that make it difficult for borrowers to defend themselves." Other types of loans are sometimes also referred to as predatory including payday loans, certain types of credit cards, especially subprime, or other forms of consumer debt (again, often subprime), and overdraft loans, when interest rates are considered unreasonably high. Although predatory lenders are likely to target less educated, poor, racial minorities, and the elderly, the victims of predatory borrowing are represented across demographics.
Predictive lending usually occurs on loans that are supported by several types of collateral, such as a car or a house, so that if the borrower fails the loan, the lender can withdraw or seize and gain profits by selling the property acquired or taken over. Lenders can be accused of tricking borrowers into believing that interest rates are lower than they really are, or that the borrower's ability to pay is greater than the real one. The lender, or any other person as the lending agent, may take advantage of the repossession or seizure of the collateral.
Video Predatory lending
Unfair or unjust lending practices
OCC Advisory Letter AL 2003-2 describes predatory lending including the following:
- Loans "flipping" - frequent refinancings that generate little or no economic benefit for the borrower and are done with the sole or sole purpose of generating additional borrowing costs, prepayment penalties, and the cost of credit-product financing related;
- Refinancings of special subsidized mortgages that result in the loss of favorable loan terms;
- "Packing" excessive and sometimes "hidden" costs in the amount to be financed;
- Using loan terms or structures - such as negative amortization - to make it difficult or impossible for borrowers to reduce or repay their debts;
- Using balloon payments to conceal the true burden of financing and forcing borrowers to engage in expensive transactions or cost seizures;
- Targeting credit products that are inappropriate or overpriced to older borrowers, to people who have no financial sophistication or who may be susceptible to harassment practices, and to people who can qualify for products and main credit terms;
- Inadequate disclosure of costs, risks and, if necessary, suitability with borrowers of loan transactions;
- Offering single premium premium life insurance; and
- Use of compulsory arbitration clause.
Maps Predatory lending
Predatory lending to minority groups
Many minority communities have been excluded from loans in the past, they are and more prone to fraud. Often, they are targeted because of this vulnerability. Organizations and institutions include ACORN, HUD, American Civil Liberties Union, United for a Fair Economy and more proved that predatory loans are disproportionately made in poor and minority environments. Brokers and lenders prey on this environment with the knowledge that these people are often turned down for loans and demand for high loans. This so-called environmental lender never landed. This creates a predatory world of subprime lending.
Subprime lenders specialize in B, C, and D papers. The lending of coercion is the practice of overcharging the borrower for tariffs and fees, the average cost should be 1%, this lender levies borrowers more than 5%.
Consumers without challenging loan loans must be borne by the major lenders. In 2004, 69% of borrowers came from subprime loans. The decline in mortgages and the failure of the 2007 economy stem from excessive borrowing.
Organizations such as AARP, Inner City Press, and ACORN have worked to stop what they describe as predatory lending. ACORN has targeted certain companies such as HSBC Finance, successfully forcing them to change their practices.
Some subprime lending practices have raised concerns about mortgage discrimination on the ground of race. African Americans and other minorities disproportionately lead to sub-prime mortgages with higher interest rates than their white counterparts. Even when average rates of income are comparable, home buyers in minority neighborhoods are more likely to get loans from subprime lenders, although not necessarily sub-prime loans.
Economist Thomas Sowell has questioned the accuracy of data stating discriminatory loans based on race: "The fact that white people are denied for conventional mortgage loans, and resorts to subprime loans, more often than Asian Americans do is rarely reported in news 'news' about lending practices , even though such data are already available. "
Other target groups
In addition, research by leading consumer groups has concluded that women have become a key component to the subprime mortgage crisis. Professor Anita F. Hill writes that most first-time home buyers are women, and that loan officers take advantage of the lack of financial knowledge of many female loan applicants. Consumers believe they are protected by consumer protection laws, when their lenders actually operate outside the law. See 15 U.S.C. 1601 and 12 C.F.R. 226.
Media investigations have revealed that mortgage lenders use sales and bait-and-switch fraud to take advantage of borrowers during a home loan boom. In February 2005, for example, journalists Michael Hudson and Scott Reckard broke the story in the Los Angeles Times about the "boiler room" sales tactics at Ameriquest Mortgage, the country's largest subprime lender. Hudson and Reckard cited interviews and court statements by 32 former Ameriquest employees who said the company had abused its customers and violated the law, "deceiving borrowers about their loan terms, falsifying documents, falsifying judgments and falsifying borrowing income to qualify them. they can not afford ". Ameriquest then agreed to pay $ 325 million for the settlement of predatory lending with state authorities across the country.
Disputes over predatory borrowing
Some supporters of subprime lending, such as the National Home Equity Mortgage Association (NHEMA), say many practices commonly called "predatory," especially risk-based pricing practices, are not predators, and many laws aimed at reducing "predatory lending." significantly limiting the availability of mortgage financing to low-income borrowers. Such parties consider predatory borrowing a derogatory term.
The underlying problem
In an article in the January 17, 2008 New York Times professor of economics George Mason University, Tyler Cowen described "predatory lending" as a potential bigger problem than predatory lending:
- "70 percent of recent early payment standards have a false representation error in their original loan application, according to a recent study by BasePoint Analytics, which helps banks and lenders identify fraudulent transactions; the study looked at more than three million loans from 1997 to 2006, with the majority from 2005 to 2006. False applications are also five times more likely to go into default Many frauds are simpler than ingenious In some cases, borrowers are required to declare their income is just lying, sometimes reporting five times the actual income, another borrower falsified income documents using a computer. "
It should be noted that mortgage applications are usually settled by mortgage brokers or lender internal lending officers, rather than by the borrowers themselves, making it difficult for borrowers to control the information that is shipped with their applications.
The application of income loans expressed is made by the borrower, and no proof of income is required. When brokers apply for a loan, they must go with whatever income is stated. This opens the door for borrowers to be approved for loans that they will not be eligible for, or capable of. However, lawsuits and testimonies from former industry insiders indicate that employees of mortgage companies are often behind the overstatement of borrower income on mortgage applications.
The borrower has little or no ability to manipulate other important data points that are often forged during the mortgage process. These include credit scores, home valuations and loan to value ratios. These are all factors that are under the control of mortgage professionals. In 2012, for example, New York Attorney General Eric Schneiderman reached a $ 7.8 million settlement on allegations that leading assessment management firms have helped boost real estate valuations on a large scale to help major lenders through more loan deals. The Attorney General's Office alleges that eAppraiseIT, which conducts more than 260,000 nationally appraisals for Washington Mutual, succumbs to pressure from WaMu loan officers to select a bending appraiser who is willing to surrender an improved property valuation.
Some commentators have rejected the idea of ​​"predatory lending", accusing those who make this argument a defender of the lack of standard lending and other excesses during the credit bubble.
Predatory servicing is also a component of predatory lending, characterized by unfair, deceptive, or fraudulent practices by lenders or other companies that serve loans on behalf of the lender, once the loan is granted. Such practices include excessive and unfounded expenses and expenses to service the loan, misrepresenting borrower's credit failure, harassing the borrower for repayment and refusing to act in good faith in working with the borrower to apply the mortgage modification as required by the federal government. law.
Legislation
In many countries, legislation aims to control this, but research has found ambiguous results, including finding that high-cost mortgage applications may increase after the adoption of legislation against predatory borrowing.
United States
Many laws at federal and state levels are aimed at preventing predatory lending. Although not specifically anti-predator in nature, the Federal Truth in the Loan Law requires certain disclosure of the APR and the terms of the loan. Also, in 1994 section 32 of the Truth in the Loan Law, titled Household Equity and Equality Protection Act of 1994, was created. This law is devoted to identifying certain high-cost mortgage loans that are potentially predatory and restrained in their terms. Twenty-five states have passed anti-predatory lending laws. Arkansas, Georgia, Illinois, Maine, Massachusetts, North Carolina, New York, New Jersey, New Mexico and South Carolina are among the countries deemed to have the most powerful laws. Other countries with predatory lending laws include: California, Colorado, Connecticut, Florida, Kentucky, Maine, Maryland, Nevada, Ohio, Oklahoma, Oregon, Pennsylvania, Texas, Utah, Wisconsin, and West Virginia. This law usually describes one or more "high-cost" or "closed" loan classes, defined by the fees imposed on the origination or APR borrowers. While lenders are not prohibited from making "high-cost" or "closed" loans, some additional restrictions are placed on this loan, and penalties for non-compliance can be substantial.
See also
- Alternative financial services
- Bank fraud
- Bonds payable
- Moneylender loan
- Mortgage fraud
- Overdraft protection loan
- Industrial poverty
- Loan anticipation loan
- Securitization
- Settlement (finance)
- Loan title
- Riba
References
External links
- Bell, Alexis. (2010). Mortgage & amp; Illegal Property Release Scheme: United States Case Study v. Quintero-Lopez.
- Do not fall victim to a loan scam from HUD.
- Protect yourself in the lending process from the California Department of Real Estate.
- The Federal Citizen Information Center, the site has links to state and federal regulators and other consumer information provided by the United States General Service Administration.
- Challenges in combating predatory lending from the United States General Accounting Firm.
- Predictive borrowing articles from Dollars & amp; Sense Magazine
- Americans for Fairness in Lending (AFFIL), a non-profit consumer organization with news, articles and suggestions
- Uncensored capitalism , Clint Reilly on a predatory lending scandal.
- The Worst Subprime Borrower in America
Source of the article : Wikipedia
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