Predatory Lending: How not to fall victim
Realizing the American dream of owning a home costs African-Americans more than whites, according to annual reports filed by mortgage lenders under the Home Mortgage Disclosure Act. In a recent statement, Neighborhood Housing Services of New York City (www.nhsnyc.org), a nonprofit agency that provides affordable loans and housing education to city dwellers, says data from 11 of the largest lenders, including Citigroup, Ameriquest, JP Morgan Chase and Countrywide Home Loans Inc., show that 22.8 percent of African-American borrowers received high-cost mortgages in 2004 against 10.8 percent of whites. And with the current real estate boom affording many Americans an opportunity to create assets, community watchers fear African-Americans are more likely to fall prey to predatory lenders.
Enacted by Congress in 1975 and implemented by the Federal Reserve Board’s Regulation C, the Home Mortgage Disclosure Act requires lending institutions to report public loan data, which is used in determining whether financial institutions are serving the housing needs of their communities; distributing public-sector investments so as to attract private investment to areas where it is needed; and identifying possible discriminatory lending patterns.
“One of the major problems in this real estate market is that unethical lenders are taking advantage of people wanting to make their American dream a reality,” says N.H.S. CEO Sarah Gerecke. Those who fall victim to suspect lenders are attracted to the “no credit, no problem” sales pitch, she says.
The amount of fraud in mortgage lending has exploded, particularly in New York City where many immigrants are eager to own a home, Gerecke notes. In most cases, victims not only are ensnared by the “no credit” line, but also by the temptation to “stretch” their income. Unethical lenders try to get aspiring home owners to stretch their income by making projections, often exaggerated, on any income that is not documented. This allows them to offer the would-be buyers bigger loans, even though they require higher monthly payments than the buyers may be able to afford.
“Stretching your income will do more harm that good. For example, with adjustable mortgages, if the interest rate goes up, you can’t afford your home anymore,” Gerecke says.
The real estate boom has triggered a campaign by aggressive developers to buy up property in urban neighborhoods, such as predominantly Black Bushwick and Bedford-Stuyvesant in Brooklyn, Harlem in Manhattan and St. Albans in Queens. Some home owners in these communities are seriously considering selling their family homes to these developers for fast cash; others are tempted by refinancing opportunities that could result in higher mortgage payments and lead to default.
The best way to avoid defaulting on your mortgage or falling victim to dishonest lenders is to educate yourself on the ins and outs of loans and home ownership, Gerecke says. She notes that with proper housing education, home owners have a 30 percent less chance of defaulting on their loans. She also cautions against refinancing, which it runs the risk of being affected by interest rate fluctuations that can lead to higher monthly payments. Gerecke offers the following tips for avoiding trouble:
• Have your loan offer reviewed by a qualified counselor.
• Make sure you can afford the loan.
• Make sure you fully understand the loan, including prepayment rules and all fees.
• Shop around for the loan
• Take a class or go for housing counseling.
• Make sure the broker and lender are registered and licensed.