Mortgage Funding Sources

In addition, this website contains links to resources for standardized homebuyer assistance programs and insurance needs. Many individuals are vulnerable to the effects of predatory lending practices. In addition to what you've just read, there are a plethora of other online mortgage information available.

 

Predatory Lending Is A Practice That Preys On The Financially Vulnerable

Everyone in the real estate industry, consumer advocacy organizations, and legislative circles may agree that predatory or abusive lending practices are wrong and must be prevented, yet there is significant disagreement about what constitutes these practices. Of course, it's obvious that a loan isn't predatory just because it has a very high interest rate, because it's a standard feature of many loans.

Oftentimes, predatory loans entail not just a dishonest home renovation contractor but also outright dishonesty in the loan documents. Flipping (repeated refinancing of debt to drain the borrower's equity by multiple commissions and charges), packing (where loan terms or additional charges are financed or added to the transaction without the borrower's consent), and failing down (where the borrower is steered to a loan product that is worse for the borrower than other available loans, but more profitable for the lender/broker) are all behaviors associated with predatory loans. Common victims of equity predators include the elderly, minorities, low-income borrowers, and naive consumers who have built up equity in their homes but are financially unsophisticated.

Predatory lending is still something that has to be monitored on the federal, state, and municipal levels due to the lack of consensus on how to protect consumers while still giving higher-risk borrowers access to credit.

 

Exactly How Do We Get Out Of This?

Dealing with predatory lenders is a widely disputed issue. Despite the fact that these loan originators are clearly wrong, some businesses do provide loan products to high-risk individuals who are ready to pay a premium for the increased risk. It's necessary and fair to use "subprime" borrowing in this case. Subprime loans are sometimes the only option for high-risk borrowers in need of credit, such as those with restricted, bad, or overextended credit.

Borrowers with a higher perceived risk are prepared to shoulder the additional costs of their loans via higher interest rates or other means. They are aware of the potential downsides of subprime loans but are nevertheless prepared to employ them because of the higher costs associated with this lending niche. Lender and contractor collusion is a major problem for subprime borrowers.

Unfortunately, many of the recent proposals made by consumer groups and politicians to counter predatory lending have been too general in scope. If these rules were in effect, the availability and scope of subprime loans to borrowers would have been drastically reduced.

 

Is There Anything New With The HOEPA Law That Protects Homeowners' Equity?

The most recent governmental initiative to curb illegal lending practices is the Home Owners Equity Protection Act (HOEPA). Additional disclosure requirements and consumer redress options apply to high-cost mortgages with interest rates at least 8% over prime. However, about 2-- 10% of subprime loans are said to be covered by HOEPA. Laws are being passed at the federal, state, and local levels to demonstrate the continued concern that more needs to be done.