Abusive Lending Practices Law Offices of Christopher T. Howell Attorneys Bloomfield New Jersey

Throughout the HUD-Treasury forums, there was substantial evidence of too- frequent abuses in the subprime lending market. These abuses tended to fall into four main categories:

Loan Flipping- Some mortgage originators refinanced borrower’s loans repeatedly in a short period of time. With each successive refinancing, these originators charged high fees, including sometimes prepayment penalties that stripped borrower’s equity in their homes.
Excessive fees and “packing”-While subprime lending involves higher costs to the ender than prime lending in many instances the Task Force saw evidence of fees that far exceeded what would be expected or justified based on economic grounds, and fees that were “packed” into the loan amount without the borrower’s understanding.
Lending without regard to the borrower’s ability to repay- One troubling practice involved lending based on borrowers’ equity in their homes, where the borrowers clearly did not have the capacity to repay the loans. In particularly egregious cases, elderly people living on fixed incomes had monthly payments that equaled or exceeded their monthly incomes. Such loans quickly led borrowers into default and foreclosure.
Outright fraud and abuse- In many instances, abusive practices amount to nothing less than outright fraud. We heard many stories from borrowers who testified at the regional forums of fraud perpetrated by unscrupulous actors in these markets often prey on certain groups-the elderly, minorities, and individuals with lower incomes and less education-with deceptive or high-pressure sales tactics.

The Subprime Mortgage Market

Predatory lending occurs primarily in the subprime mortgage lending market, which has grown rapidly over the past several years. Subprime loan originations increased from $35 billion in 1994 to $160 billion in 1999. The subprime market share increased from less than 5 percent of all mortgage originations in 1994 to almost 13 percents in 1999. Securitization of subprime mortgages has developed in the past few years and has contributed significantly to rapid growth of the market. Issuance of securities backed by subprime mortgages increased from $11 billion in 1994 to $83 billion in 1998. In 1998, 55 percent of subprime mortgages were securitized, falling back to 37 percent in 1999.

By providing loans to borrowers who do not meet the credit standards for borrowers in the prime market, subprime lending provides an important service, enabling such borrowers to buy new homes, improve their homes, or access the equity in their homes for other purposes. A majority of mortgages in the subprime market are used for consumer debt rather than housing purposes. As the HUD-Treasury Task Force forums demonstrates, however, the subprime market can be fertile ground for predatory lending activities. As documented by this report, predatory lending practices can occur at any stage of the loan process and be undertaken, or at least facilitated, by any of the many participants in a particular transaction.

Research conducted by HUD in connection with Task Force activities found that subprime lending tends to be concentrated in low-income and minority communities. Notably, HUD found that, even after controlling for neighborhood income (although without controlling for credit history risk), people living in predominantly African-American or Hispanic/Latino communities refinance in the subprime market much more often than people living in predominantly white communities

Contact Us Today

If you have been the victim of predatory lending schemes, we can represent you effectively and protect your interests. Contact us today to schedule a free confidential consultation with an experienced lawyer.

List of abusive subprime mortgage lending practices

Solicitations. Predatory mortgage lenders target lower income and minority neighborhoods for extensive marketing. They advertise through television commercials, direct mail, highly visible signs in neighborhoods, telephone and door-to-door solicitations, and flyers stuffed in mailboxes. Many companies deceptively tailor their solicitations to resemble social security or other government checks to prompt homeowners to open the envelopes and otherwise deceive them about the transaction.
Home Improvement Scams. Predatory mortgage lenders use local home improvement companies essentially as mortgage brokers to solicit loan business. These companies target homeowners and solicit them to execute home improvement contracts. Sometimes they falsely claim that government subsidies are available to pay for the cost of home improvements. The company may originate a mortgage loan to finance the home improvements and sell the mortgage to a predatory mortgage lender, or steer the homeowner directly to the predatory lender for financing of the home improvements. The homeowners are often grossly overcharged for the work, which the contractors often perform shoddily and fail to complete as agreed. They sometimes damage the homeowner’s personal property in the process. In other cases, the contractor fails to obtain required permits, thereby making sure that the work is not inspected for compliance with local codes, and that shoddy work need to be corrected.
Mortgage Broker’s Fees and Kickbacks. Predatory mortgage lenders also originate loans through local mortgage lenders who act as “bird dogs”, or finders for the lenders. The brokers represent to the homeowners that they are working for them, to help them obtain the best available loan, and the homeowners usually pay a broker’s fee. In fact, the broker’s are working for predatory lenders, who pay brokers kickbacks to refer borrowers for loans at higher interest rates than those for which the borrower would otherwise qualify. On loan closing documents, the industry uses euphemisms to describe these referral fees such as: yield spread premiums and service release fees. Also, unbeknownst to the borrower, her interest rate is increased to cover the fee. The industry calls this bonus up selling or par-plus premium pricing; we call it unlawful kickbacks.
Steering to High Rate Lenders. Some banks and mortgage companies steer customers to high rate lenders, even though those customers may have good credit and would be eligible for a conventional loan from that bank and lender. Sometimes the customer is turned or steered away even before completing a loan application. In other cases, the loan application is wrongfully denied and the lenders may charge rates of 19% to 25%, or three times the rates of 7% to 7.5% being charged for conventional mortgages.
High Points. Legitimate lenders charge points to borrowers who wish to buy down the interest rate on the loan. Predatory lenders charge high points, but offer no corresponding reduction in the interest rate. These points are imposed through prepaid finance charges (or points or origination fees), which are usually 5% to 10%, but may be as much as 20%, of the loan. The borrower does not pay these points which cash at closing. Rather, the points are always financed as part of the loan. This increases the amount borrowed, which produces more actual interest to the lender.
Balloon Payments. Predatory lenders frequently structure loans so that borrower’s payments are applied primarily to interest, and at the end of the loan period, the borrower still owes most or all of the principal amount borrowed. The last payment balloons to an amount often equal 85% or so of the principal. The homeowner cannot afford to pay the balloon payment, and either loses the home through foreclosure or is forced to refinance with the same or another lender for an additional term at additional cost.
Negative Amortization. This involves structuring the loan so that is not amortized over the term. Instead the monthly payment is sufficient to pay off accrued interest and the principal balance therefore increases each month. At the end of the loan term, the borrower may owe more than the amount originally borrowed. With negative amortization, there will almost always be a balloon payment at the end of the loan.
Credit Insurance-Insurance Packing. Predatory lenders market and sell credit as part of their loans, often without the knowledge or consent of the borrower. Typical insurance products sold in connection with loans include credit life, credit disability, credit property, and involuntary unemployment insurance. Lenders frequently charge exorbitant premiums, which are not justified based on the extremely low actual loss payouts. Frequently, credit insurance is sold by an insurance company which is either a subsidiary of the lender or which pays the lender substantial commissions. Another way of charging excessive premiums is to over-insure borrowers by providing insurance for the total indebtedness, including principal and interest, rather than merely the principal amount of the loan. In short, credit insurance becomes a profit center for the lender and provides little or no benefit to the borrower.
Padding Closing Costs. In this scheme, certain costs are increased above their market value as way of charging higher interest rate. Example include charging documents preparation fees of $350 or credit report fees of $150, which are many times the actual cost.
Spurious Open End Mortgages. In order to avoid making required disclosures to borrowers under the Truth in Lending Act, many lenders are making “open-end” mortgage loans. Although the loans are called “open-end” loans, in fact they are not. Instead of creating a line of credit from which the borrower may withdraw cash when needed, the lender advances the full amount of the loan to the borrower at the outset. The loans are non-amortizing, meaning that the payments are interest only, so that the balance is never reduced.
Paying Off Low Interest Mortgages. A predatory lender usually insists that its mortgage loan pay off the borrower’s existing low cost, purchase money mortgage. Instead of lending the borrower the amount he actually needs, the lender increases the amount of the new mortgage loan by also paying off the current mortgages. The homeowner is stuck with a high interest rate mortgage and a principal amount is much higher than necessary. This is called over lending.
Paying off forgivable Loans and Non-interest Loans. Many lower income homebuyers obtain down payment assistance grants from state and local agencies. These grants are included in the purchase money mortgage loan but are forgiven as long as the homebuyer remains in the home for five or ten tears. Other government programs allow lower income and elderly homeowners to obtain grants for necessary home improvement work to bring homes up to code standards. These grants are also made in the form of mortgage loans which are forgiven as long as the homebuyer remains in possession of the home for five or ten years. Habitat for Humanity provides home purchase mortgage loans which no interest is charged to low income homebuyers. When many subprime mortgage lenders make loans to these homeowners, they insist that these forgivable loans be paid off (to increase the amount borrowed) even though these loans would be forgiven in a matter of a few short years. Housing activists in North Carolina have investigated cases where subprime mortgage lenders have refinanced Habitat for Humanity homebuyers by paying off their no interest Habitat mortgage loans. They offer, “cash out” loans to entice these homeowners to refinance their no interest loans.
Shifting Unsecured Debt into Mortgage. Mortgage lenders badger homeowners with advertisement and solicitations that tout the “benefits” of consolidating bills into a mortgage loan. The lender fails to inform the borrower that consolidating unsecured debt into a mortgage loan secured by the home is a bad idea. Paying off the unsecured debt, which necessarily increases closing costs, since they are calculated on a percentage basis, increases the loan balance. Moreover, this practice increased the monthly payments, and exacerbates the risk that the homeowner will lose to the home. They must first foreclose and follow eviction procedures. The resulting impact on homeowners, especially elderly homeowners, can be devastating.
High Prepayment Penalties. When a borrower is in default and must pay the full balance due, predatory lenders will often include the prepayment penalty in the calculation of the balance due.
Flipping. When a borrower is in default, predatory mortgage lenders often use this as an opportunity to flip the homeowners into a new loan, hereby incurring additional high costs and fees. This is usually done several times within a short period of time.
Foreclosure Abuse. This may include persuading borrowers to sign deeds in lieu of foreclosure, giving up all rights to protections afforded under the foreclosure statues, sales of the home at below market value, sales without the opportunity to cure the default, and inadequate notice which is either not sent or backdated. We have even seen cases of “whispered foreclosures’ in which persons conducting foreclosure sales on courthouse steps have ducked around the corner to avoid bidders so that the lender was assured he would not be out-bid. Finally, foreclosure deeds have been filed in courthouse deed records without a public foreclosure sale.

Contact Us Today

If you have been the victim of abusive lending schemes, we can represent you effectively and protect your interests. Contact us today to schedule a free confidential consultation with an experienced lawyer.

Tenacious-Trustworthy-Compassionate
Attorney who aggressively Pursue Claims for the Victims of Abusive Lending

Law Offices of Christopher T. Howell
348 Franklin Street
Bloomfield, NJ 07003
Phone: (973) 259-1122

To speak with a New Jersey mortgage fraud, foreclosure defense and short sale lawyer, contact Law Offices of Christopher T. Howell.

Mastercard and Visa accepted • Se Habla Español

Law Offices of Christopher T. Howell provides immigration legal services and personal injury representation in the following New Jersey locations: Essex County, Hudson County, Union County, and Passaic County, including Bloomfield, Montclair, Orange, Clifton, Nutley, Paterson, Hackensack, Newark, Jersey City, Elizabeth, New York City, and Philadelphia.

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		348 Franklin Street Bloomfield, NJ 07003 Phone: (973) 259-1122	Abusive Lending Practices Throughout the HUD-Treasury forums, there was substantial evidence of too- frequent abuses in the subprime lending market. These abuses tended to fall into four main categories: Loan Flipping- Some mortgage originators refinanced borrower’s loans repeatedly in a short period of time. With each successive refinancing, these originators charged high fees, including sometimes prepayment penalties that stripped borrower’s equity in their homes. Excessive fees and “packing”-While subprime lending involves higher costs to the ender than prime lending in many instances the Task Force saw evidence of fees that far exceeded what would be expected or justified based on economic grounds, and fees that were “packed” into the loan amount without the borrower’s understanding. Lending without regard to the borrower’s ability to repay- One troubling practice involved lending based on borrowers’ equity in their homes, where the borrowers clearly did not have the capacity to repay the loans. In particularly egregious cases, elderly people living on fixed incomes had monthly payments that equaled or exceeded their monthly incomes. Such loans quickly led borrowers into default and foreclosure. Outright fraud and abuse- In many instances, abusive practices amount to nothing less than outright fraud. We heard many stories from borrowers who testified at the regional forums of fraud perpetrated by unscrupulous actors in these markets often prey on certain groups-the elderly, minorities, and individuals with lower incomes and less education-with deceptive or high-pressure sales tactics. The Subprime Mortgage Market Predatory lending occurs primarily in the subprime mortgage lending market, which has grown rapidly over the past several years. Subprime loan originations increased from $35 billion in 1994 to $160 billion in 1999. The subprime market share increased from less than 5 percent of all mortgage originations in 1994 to almost 13 percents in 1999. Securitization of subprime mortgages has developed in the past few years and has contributed significantly to rapid growth of the market. Issuance of securities backed by subprime mortgages increased from $11 billion in 1994 to $83 billion in 1998. In 1998, 55 percent of subprime mortgages were securitized, falling back to 37 percent in 1999. By providing loans to borrowers who do not meet the credit standards for borrowers in the prime market, subprime lending provides an important service, enabling such borrowers to buy new homes, improve their homes, or access the equity in their homes for other purposes. A majority of mortgages in the subprime market are used for consumer debt rather than housing purposes. As the HUD-Treasury Task Force forums demonstrates, however, the subprime market can be fertile ground for predatory lending activities. As documented by this report, predatory lending practices can occur at any stage of the loan process and be undertaken, or at least facilitated, by any of the many participants in a particular transaction. Research conducted by HUD in connection with Task Force activities found that subprime lending tends to be concentrated in low-income and minority communities. Notably, HUD found that, even after controlling for neighborhood income (although without controlling for credit history risk), people living in predominantly African-American or Hispanic/Latino communities refinance in the subprime market much more often than people living in predominantly white communities Contact Us Today If you have been the victim of predatory lending schemes, we can represent you effectively and protect your interests. Contact us today to schedule a free confidential consultation with an experienced lawyer. List of abusive subprime mortgage lending practices Solicitations. Predatory mortgage lenders target lower income and minority neighborhoods for extensive marketing. They advertise through television commercials, direct mail, highly visible signs in neighborhoods, telephone and door-to-door solicitations, and flyers stuffed in mailboxes. Many companies deceptively tailor their solicitations to resemble social security or other government checks to prompt homeowners to open the envelopes and otherwise deceive them about the transaction. Home Improvement Scams. Predatory mortgage lenders use local home improvement companies essentially as mortgage brokers to solicit loan business. These companies target homeowners and solicit them to execute home improvement contracts. Sometimes they falsely claim that government subsidies are available to pay for the cost of home improvements. The company may originate a mortgage loan to finance the home improvements and sell the mortgage to a predatory mortgage lender, or steer the homeowner directly to the predatory lender for financing of the home improvements. The homeowners are often grossly overcharged for the work, which the contractors often perform shoddily and fail to complete as agreed. They sometimes damage the homeowner’s personal property in the process. In other cases, the contractor fails to obtain required permits, thereby making sure that the work is not inspected for compliance with local codes, and that shoddy work need to be corrected. Mortgage Broker’s Fees and Kickbacks. Predatory mortgage lenders also originate loans through local mortgage lenders who act as “bird dogs”, or finders for the lenders. The brokers represent to the homeowners that they are working for them, to help them obtain the best available loan, and the homeowners usually pay a broker’s fee. In fact, the broker’s are working for predatory lenders, who pay brokers kickbacks to refer borrowers for loans at higher interest rates than those for which the borrower would otherwise qualify. On loan closing documents, the industry uses euphemisms to describe these referral fees such as: yield spread premiums and service release fees. Also, unbeknownst to the borrower, her interest rate is increased to cover the fee. The industry calls this bonus up selling or par-plus premium pricing; we call it unlawful kickbacks. Steering to High Rate Lenders. Some banks and mortgage companies steer customers to high rate lenders, even though those customers may have good credit and would be eligible for a conventional loan from that bank and lender. Sometimes the customer is turned or steered away even before completing a loan application. In other cases, the loan application is wrongfully denied and the lenders may charge rates of 19% to 25%, or three times the rates of 7% to 7.5% being charged for conventional mortgages. High Points. Legitimate lenders charge points to borrowers who wish to buy down the interest rate on the loan. Predatory lenders charge high points, but offer no corresponding reduction in the interest rate. These points are imposed through prepaid finance charges (or points or origination fees), which are usually 5% to 10%, but may be as much as 20%, of the loan. The borrower does not pay these points which cash at closing. Rather, the points are always financed as part of the loan. This increases the amount borrowed, which produces more actual interest to the lender. Balloon Payments. Predatory lenders frequently structure loans so that borrower’s payments are applied primarily to interest, and at the end of the loan period, the borrower still owes most or all of the principal amount borrowed. The last payment balloons to an amount often equal 85% or so of the principal. The homeowner cannot afford to pay the balloon payment, and either loses the home through foreclosure or is forced to refinance with the same or another lender for an additional term at additional cost. Negative Amortization. This involves structuring the loan so that is not amortized over the term. Instead the monthly payment is sufficient to pay off accrued interest and the principal balance therefore increases each month. At the end of the loan term, the borrower may owe more than the amount originally borrowed. With negative amortization, there will almost always be a balloon payment at the end of the loan. Credit Insurance-Insurance Packing. Predatory lenders market and sell credit as part of their loans, often without the knowledge or consent of the borrower. Typical insurance products sold in connection with loans include credit life, credit disability, credit property, and involuntary unemployment insurance. Lenders frequently charge exorbitant premiums, which are not justified based on the extremely low actual loss payouts. Frequently, credit insurance is sold by an insurance company which is either a subsidiary of the lender or which pays the lender substantial commissions. Another way of charging excessive premiums is to over-insure borrowers by providing insurance for the total indebtedness, including principal and interest, rather than merely the principal amount of the loan. In short, credit insurance becomes a profit center for the lender and provides little or no benefit to the borrower. Padding Closing Costs. In this scheme, certain costs are increased above their market value as way of charging higher interest rate. Example include charging documents preparation fees of $350 or credit report fees of $150, which are many times the actual cost. Spurious Open End Mortgages. In order to avoid making required disclosures to borrowers under the Truth in Lending Act, many lenders are making “open-end” mortgage loans. Although the loans are called “open-end” loans, in fact they are not. Instead of creating a line of credit from which the borrower may withdraw cash when needed, the lender advances the full amount of the loan to the borrower at the outset. The loans are non-amortizing, meaning that the payments are interest only, so that the balance is never reduced. Paying Off Low Interest Mortgages. A predatory lender usually insists that its mortgage loan pay off the borrower’s existing low cost, purchase money mortgage. Instead of lending the borrower the amount he actually needs, the lender increases the amount of the new mortgage loan by also paying off the current mortgages. The homeowner is stuck with a high interest rate mortgage and a principal amount is much higher than necessary. This is called over lending. Paying off forgivable Loans and Non-interest Loans. Many lower income homebuyers obtain down payment assistance grants from state and local agencies. These grants are included in the purchase money mortgage loan but are forgiven as long as the homebuyer remains in the home for five or ten tears. Other government programs allow lower income and elderly homeowners to obtain grants for necessary home improvement work to bring homes up to code standards. These grants are also made in the form of mortgage loans which are forgiven as long as the homebuyer remains in possession of the home for five or ten years. Habitat for Humanity provides home purchase mortgage loans which no interest is charged to low income homebuyers. When many subprime mortgage lenders make loans to these homeowners, they insist that these forgivable loans be paid off (to increase the amount borrowed) even though these loans would be forgiven in a matter of a few short years. Housing activists in North Carolina have investigated cases where subprime mortgage lenders have refinanced Habitat for Humanity homebuyers by paying off their no interest Habitat mortgage loans. They offer, “cash out” loans to entice these homeowners to refinance their no interest loans. Shifting Unsecured Debt into Mortgage. Mortgage lenders badger homeowners with advertisement and solicitations that tout the “benefits” of consolidating bills into a mortgage loan. The lender fails to inform the borrower that consolidating unsecured debt into a mortgage loan secured by the home is a bad idea. Paying off the unsecured debt, which necessarily increases closing costs, since they are calculated on a percentage basis, increases the loan balance. Moreover, this practice increased the monthly payments, and exacerbates the risk that the homeowner will lose to the home. They must first foreclose and follow eviction procedures. The resulting impact on homeowners, especially elderly homeowners, can be devastating. High Prepayment Penalties. When a borrower is in default and must pay the full balance due, predatory lenders will often include the prepayment penalty in the calculation of the balance due. Flipping. When a borrower is in default, predatory mortgage lenders often use this as an opportunity to flip the homeowners into a new loan, hereby incurring additional high costs and fees. This is usually done several times within a short period of time. Foreclosure Abuse. This may include persuading borrowers to sign deeds in lieu of foreclosure, giving up all rights to protections afforded under the foreclosure statues, sales of the home at below market value, sales without the opportunity to cure the default, and inadequate notice which is either not sent or backdated. We have even seen cases of “whispered foreclosures’ in which persons conducting foreclosure sales on courthouse steps have ducked around the corner to avoid bidders so that the lender was assured he would not be out-bid. Finally, foreclosure deeds have been filed in courthouse deed records without a public foreclosure sale. Contact Us Today If you have been the victim of abusive lending schemes, we can represent you effectively and protect your interests. Contact us today to schedule a free confidential consultation with an experienced lawyer. Tenacious-Trustworthy-Compassionate Attorney who aggressively Pursue Claims for the Victims of Abusive Lending Law Offices of Christopher T. Howell 348 Franklin Street Bloomfield, NJ 07003 Phone: (973) 259-1122 To speak with a New Jersey mortgage fraud, foreclosure defense and short sale lawyer, contact Law Offices of Christopher T. Howell. Mastercard and Visa accepted • Se Habla Español Law Offices of Christopher T. Howell provides immigration legal services and personal injury representation in the following New Jersey locations: Essex County, Hudson County, Union County, and Passaic County, including Bloomfield, Montclair, Orange, Clifton, Nutley, Paterson, Hackensack, Newark, Jersey City, Elizabeth, New York City, and Philadelphia.
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