American Dream turns to American Nightmare in Mortgage Lending Crisis
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Home ownership, “The American Dream,” has for many families all across America become “The American Nightmare!” Home foreclosures are at an all-time high.
According to Stanford University Hoover Institution, “Foreclosure filings have more than doubled during the past year.” The report goes on to say that 739,714 households received foreclosure starts, which is 1 out of every 171 households in the United States. That’s an increase of approximately 121 percent compared to one year ago.
What can account for such a dramatic increase in home foreclosures? The economy certainly plays a role, but for the most part subprime loans, and predatory lending practices, are part of the problem as well.
A report from the National Housing Institute (NHI), dated in 2005, says that “the growth of subprime lending (higher cost loans to borrowers with blemishes on their credit records) in recent years clearly indicates a surge in a range of exploitative practices.” The report goes on to say that “not all subprime loans are predatory, but virtually all predatory loans are subprime.”
Predatory lenders target mostly low- and moderate-income families. A lot of these families already struggle and when the economy climate changes, such as higher gas and food prices, it causes them to struggle even more.
What is Predatory Lending? The U.S. Department of Housing and Urban Development (HUD) describes predatory lending as:
- Loan Flipping – mortgage originators refinance borrower’s loans repeatedly in a short period of time.
- Excessive Fees and “Packing” – fees that far exceeded what would be expected or justified based on economic grounds.
- Lending without regard to the borrower’s ability to repay – the borrowers clearly did not have the capacity to repay the loan. (i.e. Elderly living on a fixed income)
- Outright fraud and abuse – certain groups, like home improvement contractors, appraisers and lenders, who prey on certain groups like the elderly and minorities.
There is help for people who are about to lose their home to foreclosure. The Alabama Bar Association has launched a campaign to assist homeowners facing foreclosure. State Bar President-elect Thomas J. Methvin of Montgomery (Beasley, Allen, Crow, Methvin, Portis & Miles, P.C.), chairs the Mortgage Foreclosure Task Force and says “help is available” and “homeowners need to know their options.” He also says, “early intervention is the key to a successful outcome.”