Borrower Beware

By - May 1st, 2003 02:52 pm
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By Bethany Sanchez

PART ONE OF A TWO-PART SERIES

A cautionary tale

“Mrs. Green” is a 72-year-old widow, who has lived in her home for 28 years. When a home repair contractor knocked on her door in April 2000, Mrs. Green had great credit, and she had almost paid off her entire 30-year mortgage. The contractor told her that it looked like her house needed some work. Mrs. Green acknowledged that her roof leaked, the house needed painting, and that the front porch was deteriorating and unsafe. However, she told the contractor that she could not afford to make the needed repairs, as she was on a very limited, fixed income.

The contractor told Mrs. Green about a lender who would give her a home repair loan. The lender came to Mrs. Green’s house, helped her with her paperwork, and then sent out an appraiser who valued her house at a surprisingly high amount. The lender gave her a loan that not only paid the cost of the repairs, but also refinanced Mrs. Green’s mortgage and consolidated her credit card debt. The new interest rate was twice that of the old mortgage. Mrs. Green paid almost $5,000 in fees on the new loan and doubled her monthly debt payment.

Shortly after the loan closed, Mrs. Green’s brother-in-law died. She used some of her monthly income, and tapped into her very limited savings to travel to New York to help her sister with the funeral and burial expenses. These expenses stretched her resources and caused her to, for the first time ever, send in her loan payment late. When the next month’s statement arrived, Mrs. Green found that she had been assessed a huge late payment fee, and when she did not pay the fee, the amount considered to be overdue continued to increase until the lender threatened to foreclose on the property.

Not having many options, Mrs. Green decided to sell her house and move in with her son, but she found that the loan amount was $20,000 more than the market value of the house. The appraisal had been falsified. Mrs. Green was trapped in a loan that she couldn’t pay, and couldn’t even sell her house to entirely pay off the loan. She had no way “out.”

“Mrs. Green’s” story is only one of hundreds involving Milwaukee area homeowners who have become victims of what is called a predatory loan. The details of these stories and loans vary widely from homeowner to homeowner, but the despicable practices of predatory lenders usually take a devastating toll on the homeowner.

What is a predatory loan?

A predatory loan is a loan that is unsuitable for the borrower, designed to exploit vulnerable or unsophisticated borrowers. A predatory loan has one or more of the following features:

Mrs. Green’s story actually combines several of the things the Metropolitan Milwaukee Fair Housing Council hears over and over. The most common reasons people are seduced by these loans are an urgent need for cash for home repairs, medical bills or funeral expenses, or to consolidate debt into one loan and one payment.

Often, the borrower is in a hurry, and wants to get the loan quickly. Predatory lenders make it quick and easy for you to get a loan – even if you have bad credit. Sometimes they bring the loan papers and the check right to your house.

Quick and easy approvals sound like good things, but what the victims of these predatory loans find out is, that in the end, the cost of those fast approvals can be enormous. If you suspect that you, or someone you know, has been taken in by a predatory lender, there is a free, confidential way to get help. Call the STOPP hotline at the Metropolitan Milwaukee Fair Housing Council (MMFHC): (414) 278-9190. STOPP, which stands for Strategies to Overcome Predatory Practices, is a component of MMFHC’s Community and Economic Development Program. STOPP utilizes a coalition of community-based organizations, housing industry representatives and government to identify and eliminate predatory lending practices throughout Milwaukee County.

Next Month: Find out how you can avoid predatory lenders, and their risky, high cost loans.

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