Free To The Public:
Home Ownership & Predatory Lending WORKSHOP

August 9th & 12th 6:30 – 8:00 P.M.
Macedonia Missionary Baptist Church, 3701 Princess Place Drive,
Wilmington, NC 28405

PARTICIPANTS:
North Carolina Coalition For
Responsible Lending
Cape Fear Regional CDC
Self Help Credit Union
Mallard Maynard, Esquire
Peter Grear, Esquire

SUPPORTERS:
Wilmington Ministerial Alliance
Macedonia Missionary Baptist Church &
other area churches
For more information call: (910) 763-4671

Predatory Lending Practices

The reach and effect of abusive practices by predatory lenders have increased along with the dramatic growth of the subprime industry. The following are some of the more common predatory practices:

Financing Excessive Fees into Loans

Predatory lenders often finance huge fees into loans, stripping thousands of dollars in hard-earned equity and racking up additional interest in the future. Borrowers in predatory loans are routinely charged fees of just under 8% of the loan amount in fees, compared to the average 1%-2% assessed by banks to originate loans. Once the paperwork is signed and the rescission period expires, there is no way to get that equity back, and borrowers frequently lose up to $10,000 or $15,000 from their home while receiving little, if any, benefit from the refinancing. The damage is compounded at higher interest rates as borrowers often pay tremendous interest costs in the years it takes just to pay down the fees. Typically, the loan fees are kept below 8% in order to stay under the HOEPA fee threshold established by federal law, which would then require additional disclosures to the borrower and additional consumer protections.
A couple with limited English speaking skills were convinced to refinance their mortgage and take a cash-out of around $9,500. To do so, they were charged $10,368 in lender fees, plus another $927 in third party fees, which totaled around 8% of their loan amount of $145,259. They are now struggling to make their monthly payments, which, unlike their previous loan, do not include taxes and insurance.

Charging Higher Interest Rates Than A Borrower’s Credit Warrants

While the higher interest rates charged by subprime lenders are intended to compensate lenders for taking a greater credit risk, too many borrowers are unnecessarily paying higher interest rates. Borrowers with perfect credit are regularly charged interest rates 3 to 6 points higher than the market rates; with some subprime lenders, there simply is no lower rate, no matter how good the credit. According to a rate sheet used by the Associates in the spring of 2000, their lowest interest rate for a borrower with excellent credit and a low loan-to-value ratio was over 10%, and during a similar period Household borrowers with excellent credit were seeing rates above 11%. And for borrowers with imperfect credit, rates are frequently much higher than even somewhat blemished credit would reasonably warrant, as well as for what the industry describes as standard rates for B, C, or D borrowers.

A husband and wife with FICO scores of 721 and 693, respectively (they had even higher ratings from other credit bureaus), were not looking to refinance, but they were distracted by the recent death of a granddaughter and the loan officer made a strong sales pitch. Over $14,000 in fees and a $5,271 single premium credit insurance policy were financed into their loan, which they are locked into by a five-year prepayment penalty for over $10,000. Despite their excellent credit record, they were given an interest rate of 13.0% on their mortgage.

More practices continued next week. •