Although it is tempting to believe that there are only a small number of “predatory lenders” who engage in such egregious behavior that their behavior is easily distinguishable from all other lenders, in fact there are a broad range of practices, which when tied to high fees and interest rates, strike most community groups as being “predatory.”  The difficulty inherent in this issue is that there is a continuum of these practices and they are often bundled together. While each practice can be legitimate on its own within the context of a prime priced loan, they become abusive when bundled together as part of a high-cost loan.

Most public attention about “predatory lending” has been focused on the largest financial institutions involved in subprime lending such as, CitiFinancial, Household Finance, Conseco/GreenTree, Washington Mutual’s Long Beach mortgage and Bank of America (before they recently sold their subprime units). However, the dividing line between legitimate and abusive behavior is not easily drawn. For instance Fannie and Freddie have estimated that between 30% and 50% of all subprime loans are to borrowers who qualify for prime loans.  Most community groups would use the term “predatory lenders’ for institutions that engage in subprime lending without a strictly enforced “referral up” program for borrowers who qualify for prime rates. 

There are a number of institutions that engage in some subprime lending even though a majority of their business is not subprime. To take some regional examples, Wells Fargo has increased its involvement in the subprime lending business dramatically in the last few years. US Bank has had a partial ownership interest in New Century; JP Morgan Chase has purchased Advanta in the past year. And the involvement doesn’t just include the biggest banks. The Minneapolis Federal Reserve estimated in 1999 that 29% of the banks in its district offered some type of subprime product.

In addition to lack of a good “referral up” program the following practices are some of those that are most commonly considered “predatory” by community groups in the context of a high interest rate loan:

• Single premium credit life insurance and financing of other credit insurance, including "debt cancellation" or suspension agreements directly or indirectly into the cost of the loan.

• Refinancing with little or no tangible net benefit to the borrower-a practice commonly referred to as "flipping."

• Call and balloon payment provisions of less than 15 years.

• Mandatory arbitration clauses.

• Excessive prepayment penalties.

• Lending without due regard for repayment ability.

• Charging a fee for a product or service where the product or service is not actually provided.

• Packing duplicative fees or charging more than a service actually costs -This can happen with: processing fees, underwriting fees, appraisal fees, title insurance fees, application fees, settlement fees, closing fees, document preparation fees, administrative fees, legal fees, endorsements fees, escrow fees, origination fees, ourier fees, discount fees, tax-service fees, and flood certification fees.



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• Negative amortization

• Advance payments

• Increasing the interest rate after default

• Modification or deferral fees

• Financing points and fees on all high cost loans

• Excessive late fees/charges 

• Real estate agents that influence appraisers.

• Leaving open blanks in loan contracts to be filled in after the contract is signed

• Lenders who making payments directly to home improvement contractor

• Direct or indirect financing of a prepayment penalty in a refinanced loan.

• Refinancing of subsidized or special guaranteed (via state, local, tribal or non-profit) that has either a below-market APR or nonstandard pro-borrower payment terms and where refinancing results in loss of beneficial considerations of special mortgage

See also:
• "Mortgage Awareness Program."
• state.il.us/dfi/preditor.htm
• From the "Illinois Department of Financial Institutions."

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• Search <predatory lending> in:

<Google--News> <AllTheWeb--News> <Teoma>

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• Some of the largest financial institutions involved in subprime lending have been:
• CitiFinancial, 
• Household Finance, 
• Conseco/GreenTree, 
• Washington Mutual’s Long Beach mortgage and 
• Bank of America (before they recently sold their subprime units)

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• Fannie and Freddie have estimated that between 30% and 50% of all subprime loans are to borrowers who qualify for prime loans.



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• The National Community Reinvestment Coalition, a national group that represents over 800 community reinvestment and development organizations from across the United States has defined predatory lending in this way:

 

 
 
 
 
 

“Predatory loans are defined as unsuitable loans designed to exploit vulnerable, unsophisticated or elderly borrowers. Predatory loans are a subset of sub-prime loans. A predatory loan has one or more of the following features: 1) charges more in interest and fees than is required to cover the added risk of lending to borrowers with credit imperfections, 2) contains abusive terms and conditions that trap borrowers and lead to increased indebtedness, 3) does not take into account the borrower’s ability to repay the loan, and 4) violates fair lending laws by targeting women, minorities and communities of color.”

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