PREDATORY LENDING

“Predatory Lending” occurs when a financial institution charges home buyers or homeowners more for standard services than is the norm for someone with their credit rating. This in turn results in an increase in the cost of home buying or home repair by thousands of dollars for individual families. These increased costs are found in interest rates far above conventional loan rates; excessive mortgage fees and points, often hidden in the mortgage financing; up-front payment of credit insurance; balloon payments; frequent refinancing; huge prepayment penalties; and arbitrary call provisions. These “sub-prime loans,” which are targeted at homeowners with low incomes or damaged credit histories and at African-Americans, often result in the victims paying much more money than they should, and in some cases they lose their homes.

A 2000 study by the U.S. Department of Housing and Urban Development (HUD) found that predatory lending is increasing dramatically and is found predominately in African-American and poor neighborhoods. Between 1993 and 1998, the number of sub-prime home refinancing loans increased more than 10-fold, accounting for more than $150 billion in refinancing loans in 1998 (home refinancing loans account for 80 percent of all “sub-prime loans.”) Sub-prime loans are three times more likely in low-income neighborhoods than in high-income neighborhoods and five times more likely in predominately black neighborhoods than in white ones. Even upper income African-Americans are not safe: the HUD study showed that home-owners in high income African-American neighborhoods are twice as likely as homeowners in low-income white neighborhoods to have sub-prime loans. As a result, homeownership can be far more costly for blacks and poor families than for whites and middle-class families.

Predatory lending is not only unfair and immoral, but it is destroying individual lives, families and whole communities.