Predatory Lending : Rooftop Views

Rooftop Views

Predatory Lending

Four mortgage brokers in the Denver area were recently disqualified by HUD from doing FHA loans. Reason? Predatory lending practices.

What exactly are predatory lending practices? Mostly they have to do with inflated interest rates and closing costs. Usually it involves minority buyers.

We have seen loans made to non-English speaking buyers (where we represented the Sellers and thus had no input) that were 3-4% over existing interest rates and included 2% origination fees (where 1% or less is the norm) and closing costs that that were 6-7% of the contract price (when 3% or so is usual). Now it is typical for buyers with less than perfect credit to pay higher interest rates. But the amounts we have seen are ridiculous.

Clearly HUD thinks some of these practices are so bad that they won't allow them to be associated with FHA loans. We not only agree, we wish there was some way to run these mortgage brokers out of business. These types of loans usually lead to foreclosure as the buyers can't afford to make the house payments for long. And foreclosures hurt all of us - they lead to lowered values in the neighborhood because they are usually sold for less than market price and they are usually not in the best condition. And they usually sit vacant for a while. A vacant home is an invitation for all sorts of bad things to happen.

Colorado just passed a new law so that mortgage brokers must be registered and post a bond to do business in the state. We were the next to last state to do something about regulation of mortgage brokers. It's about time.

If you have any questions about the terms of any home loan you are considering, don't be afraid to call several lenders. Be sure to call a major bank or two to see what they offer. Many times they have programs for lower income borrowers or for those who have credit dings.

It's better to walk away from the contract than to get yourself into financial trouble because you can't afford the loan.