Tom Kelly: Despite safeguards, predatory lenders still operating

Predators come to the party wearing a variety of hats, yet their intent clearly is common.

Webster’s gives the definition of “predatory” as “relating to, or practicing plunder, pillage or rapine … showing a disposition to injure or exploit others for one’s own gain.”

In the home-mortgage industry, predators historically have jockeyed to the most vulnerable rung of the housing ladder, seeking to “dine and dash” with the least suspecting group of borrowers having to pay the bill.

Now, while most bad actors have been rooted out of real estate lending, a few borrowers are being hit with loan presentations that seem too good to be true. If you don’t speak the language (loan language or English language) you can easily find yourself as a target. That’s why housing officials pushed for safeguards against predatory lending, hoping to curb the quick-hit artists who have no intention of spending years in the loan industry.

Put yourself in a pair of “fast buck” shoes for a moment and think about the possibilities: First, you have a huge group of last-time buyers who are not familiar with the terms of the loan programs available today. These folks have had no need, nor interest, in researching loans the past 20 years because they’ve had no intention of moving. They have surfaced to find the current reams of paperwork foreign to their borrowing background.

And speaking of foreign: The National Association of Realtors reports that more than one-third of first-time homebuyers were members of a racial or ethic minority, indicating the huge language challenge for real estate agents and loan reps.

However, the language challenge is not reserved for first-time buyers. I interviewed a consumer recently, a native of Honduras, who was pressured into abandoning a fixed-rate loan for refinance that left him with a huge lump-sum payment after nearly 20 years of payments. He said authorities are reviewing his case.

“I have to think my Latino background had something to do with it,” said the man, who I’m identifying as Eduardo. “The loan officer just kept pressuring me and pressuring me with deadlines. She said if I signed by the end of the month I would be able to save a mortgage payment.”

Eduardo was seeking to lower his monthly mortgage payment of $898 plus pay off about $6,000 in consumer debt. He has a good job with the postal service and makes timely payments on all money he owes.

“The loan person continued to tell me that I was the only one of her clients who was second-guessing this deal,” Eduardo said. “I was skeptical and kept insisting that all this be put in writing so I could really understand it.

“But she kept telling me this was the best way for me to save a lot a money. One day she came over with the paperwork for me to sign up. I ended up signing it. She didn’t break my hand or anything, but there was a lot of verbal pressure.”

Eduardo’s monthly payments zoomed to $1,167 a month. He also discovered that if he refinanced or prepaid his loan within the first three years, he would owe a sum equal to six months of payments.

Cases like Eduardo’s are not as common as the anything-goes mortgage days of a decade ago, yet his deal makes one wonder if we could be tipping back into some seamy territory, despite the efforts of the federal government to increase consumer education and disclosures about the lending process in an effort to cut down on abusive lending.

It used to be that intentional deception centered on equity-skimming con artists who assumed mortgages and quit making payments. When the mortgage holder foreclosed on the loan, the lender sought full payment from the initial borrower – typically an innocent veteran or senior who was left holding the bag.

Solutions arrived to cover specific hurts. For example, government loans used to be fully assumable, with virtually no requirements. Now, there are more stringent guidelines. The Mortgage Bankers Association of America is among the groups who have jumped on board to educate potential homebuyers about lending abuses and teach them homeownership skills. But it’s difficult to stop all scammers in every borrowing category.