Predatory Lending: Exclusive Interview with Chip Bromley

mortgage advice

Predatory Lending Interview: Chip Bromley

Chip Bromley, of Cleveland Heights, Ohio, has worked as a fair housing advocate for over thirty years.

Is there a particular type of person (demographic) that is most likely to be targeted by predatory lenders?

Predatory lending first focused on minority neighborhoods and under served neighborhoods. The original focus was on refinancing of mortgages where people lost their home equity and received no benefit from the financial transaction. Many elderly people were targeted because they were trusting and had substantial equity in their homes. Now, predatory lending has moved to home purchase with 228ís, 327ís, and exploding ARM payments. The final new focus has been on home repair mortgage specialists who dupe people into believing that they will be saving their home, when in fact the homeowner has turned over the deed and the key to the house to the mortgage broker.

Are residents of low-income neighborhoods often given sub prime loans when they could actually qualify for prime loans?

According to Fannie Mae and Freddie Mac, approximately 30% of the individuals who were given subprime refinance would have qualified for a prime loan.

How have sub prime lenders been able to take over low income areas? Have prime lenders abandoned certain areas?

Many prime lenders closed bank branches in minority and underserved neighborhoods. Credit needs in those neighborhoods were filled by lenders, such as Household Finance and Beneficial and now, an explosion of payday lenders.

What can be done by legislators to improve this situation? Is there any pending legislation that might help?

Many states, including Ohio have enacted state legislation to curb predatory lending, however, many of the provisions of the state laws are being preempted by federal regulators, such as the Office of the Comptroller of the Currency. The most important aspect is to put into state law the fiduciary responsibility of the broker to the customer.

Should interest rates be determined solely by objective measures to protect the consumer?

Consumers benefit when there are more choices and by and large do not benefit by the push marketing techniques employed by mortgage brokers. Consumers benefit from financial literacy to help them be more aware of the financial products from which they can select.

How can sub prime lenders be held responsible when they are a business trying to get the most money for their product?

Sub prime lenders operate in a market place where they benefit from a single transaction and then disappear with a new name and company at a new location. There are undoubtedly well-qualified sub prime lenders; unfortunately, the industry has allowed many predators to participate in the industry. The result has been a sub prime meltdown in the credit markets, as well as a patchwork of state and local laws governing mortgage lenders.

Who is at fault? Should mortgage brokers be required to get universal licensing?

It is difficult to say, but the mortgage broker assumed a different role as compared to the traditional lender. Push marketing techniques, yield spread premiums, balloon payments, flipping mortgages, and appraisals that were out of line with the market place have led many consumers to lose their homes and whole communities have been devastated. Home owners undoubtedly had visions of counting cash from their home equity and a certain number of them gave a wink and a nod to the appraisal prices and the deals that were in front of them. Finally, the federal government is stepping in and beginning to provide new regulations regarding sub prime lending, however, it will be a long time before the thousands of foreclosures and vacant homes will be absorbed into the community.