Predatory Lending:Effects On The Community Essay

2812 words - 11 pages

Fair housing has become an important and familiar topic amongst the home buying population. In fact, housing fraud has become such a major issue these days that events such as county fairs have even held poster contests to involve children in helping support fair housing opportunities (HUD Newsroom). Loan fraud continues to affect home buyers and de-stabilize housing communities on a yearly basis. In a broad sense, the term predatory lending refers to the act of persuading borrowers to agree to unfair and abusive loan terms. Specifically, "predatory lending refers to secured loans such as home loans which are made by the lender with the intention that the borrower will not repay the loan, allowing the lender to seize the home and sell it for a profit" (wikipedia, HUD). Predatory lending follows strategic lending processes with an unjust intent to gain profit, which leaves citizens and communities in damaging situations.In communities across the country, predatory lenders, appraisers, and mortgage brokers seek to trap uninformed potential homebuyers. When a lender or investor is dealing with a client ignorant to the borrowing process, they have the advantage to manipulate or even flat out lie to borrowers. The Department of Housing and Urban Development (HUD) lists some of the fraudulent tactics predatory lenders use in the lending process. Homes that people buy are set at significantly higher costs than other homes in the neighborhood, but are not higher in value. Lenders tell borrowers that it is their only chance of getting a loan, owning a home, or that they can only get a good deal on a home improvement if they finance it with a particular lender. Borrowers are asked to sign sales contracts or loan documents that are blank or that contain false information. People are even told that refinancing - taking out more loans, can solve their credit or money problems (HUD)The process begins by conducting false appraisals; in other words the value of properties is intentionally overestimated. Borrowers are then drawn in and misled to believe that the property on which they are singing a mortgage is worth much more than it really is. When applying for a loan, borrowers are encouraged to lie about their financial status such as their incomes, credit histories and assets, in order get loans approved.Loans are then dispersed to the borrower at a higher amount than can be re-paid. Sub-prime loans are the result of this act of over lending. Because these borrowers have less then ideal credit and/or low incomes, there is a higher risk of not repaying the loans, therefore they become subject to high interest rates and loss of their assets. Over lending benefits lenders because sub-prime mortgage loans are granted to borrowers and are backed by some kind of collateral, such as cars, properties or jewelry. This way, if the borrower defaults on payment, the lender can still profit by selling the repossessed or foreclosed property (wikepedia).Predatory lenders...

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