COLUMN: Predatory lenders exploit the innocent

Predatory lending is a nationwide scandal. People who are involved in this practice prey on the most vulnerable of our citizens -- the elderly and minorities.

There are many causes of predatory lending, including federal pre-emption of state usury ceilings and state restrictions on alternative mortgage financing, state deregulation of interest rates, and borrowers' lack of access to mainstream lending institutions and market information.

Victims usually are unsophisticated and under-educated buyers who lack the information to obtain appropriate loan terms, so they end up paying exorbitant interest rates or excessive charges for prime rates. Or, they may be high-risk borrowers satisfied to obtain credit at any price.

Some borrowers in low-income communities and/or recent immigrants may believe they do not have alternatives to high rates.

The Lied Institute for Real Estate Studies of the University of Nevada, Las Vegas, recently conducted an analysis of predatory lending practices in Southern Nevada with the support of a grant from the Fannie Mae Foundation.

Preliminary findings determined predatory lending is not defined in any federal or Nevada statutes governing mortgage transactions.

Predatory lending is most commonly associated with the sub-prime mortgage market because its borrowers are either elderly and/or minorities who have limited access to traditional information and probably won't qualify for prime loans.

The inability to define the term "predatory lending" has led to confusion, particularly in the definition of "excessive fees." Sub-prime lenders note that without their supply of higher-cost, higher-risk money, many families would not enjoy homeownership.

Most predatory lending practices fall into several broad categories:

--Excessive fees are those that exceed what should be charged based upon the transaction's economics, the borrower's creditworthiness and the lender's compensation.

--Fraud, including identity theft, inflated appraisals and false financial documentation.

--Providing mortgages without regard to the borrower's ability to pay.

--Loan flipping involves repeated refinancing without regard to the impact on the borrower's total costs. It lowers home equity and increases the borrower's exposure to default and foreclosure.

--Shifting prime borrowers to sub-prime borrowers increases the profits of unscrupulous lenders.

The study recommends:

1. State licensing of individuals and enterprises involved in the origination of home mortgages

2. Heightening the enforcement activities of existing regulations

3. Increasing consumer literacy and requiring improved disclosure rules

4. Improving foreclosure prevention measures through improved notification procedures and education

5. Limiting prepayment penalties to avoid abuses

6. Studying limiting the use of balloon loan payment terms

7. Improving the level of current data available on home mortgages

Although predatory lending is not as apparent as the redlining practices of the 1960s, its effects are no less egregious. Predatory lenders conceal their practices under the guise of opportunities to borrowers who otherwise would be unable to buy a home.

If Southern Nevada's economy suffered a downturn, the victims of predatory lending would increase dramatically.

For shame.

Carmel Hopkins, real estate product manager for the Las Vegas Review-Journal and Las Vegas Sun, can be reached at 380-4574. Her e-mail address is Carmel_Hopkins@ lasvegasnewspapers.com. Snail mail is P.O. Box 70, Las Vegas, NV 89125.

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