Summary
Industry representatives typically cite the poor credit histories of most subprime borrowers to explain increasing foreclosure rates. Consumer and community advocates, however, paint a darker picture. "Predatory lending is definitely a systemic problem within the subprime mortgage industry," says Al Hofeld Jr., a litigation attorney and chair of the South Side Community Federal Credit Union in Chicago (SS-CFU). "There are very few subprime lenders who will make a subprime loan where the interest rate actually reflects the risk involved."
"Subprime lenders," says [Geoff Smith], "are taking advantage of the fact that they're the only game in town." Individual brokers and loan officers make money by taking "points"-that is, charging percentage points of the loan amount, which are added to the borrower's closing costs-giving them an incentive to maximize the loan amount, regardless of the borrowers ability to pay for it."Ideally, what we need is a federal law to make sure lenders are using appropriate qualifying standards so that borrowers can repay the loans," says Smith. Groups like the Center for Responsible Lending have also supported a ban on prepayment penalties and a reform of the "perverse compensation incentives" for "hazardous" loan products.See the full content of this document
Extract
The Subprime Bait and Switch
WHEN THE HOUSING MARKET began its rapid ascent in the mid-'90s, many observers waxed rhapsodic about the potential of high-interest, subprime loans to merge the financial interests of investors and low income and minority communities. The hope for subprime boosters was that such loans would allow the mortgage industry to continue business as usual while at the same time meeting government mandates for fair and affordable housing. As recently as April 2005, Alan Greenspan praised the deregulation of the banking and lending industries for having "vastly expanded credit availability to virtually all income classes."
It's true that the number of minority homeowners in...See the full content of this document
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