Subprime predatory practices.....

[exUte]

that Obama continues to spew. What is the subprime predatory practice he is referring to.

The lenders went out and dragged people into their offices and forced borrowers to borrow money they couldn't afford to pay back?

[ERCougar]

Originally Posted by exUte

that Obama continues to spew. What is the subprime predatory practice he is referring to.

The lenders went out and dragged people into their offices and forced borrowers to borrow money they couldn't afford to pay back?

Yeah, I'm sick of that phrase as well. I took out one of these balloon loans, and I knew very well what the risks were. It's really not that complicated.

For the most part, I think these "victims" were victims of their own greed, not predatory practices.

[il Padrino Ute]

Originally Posted by ERCougar

Yeah, I'm sick of that phrase as well. I took out one of these balloon loans, and I knew very well what the risks were. It's really not that complicated.

For the most part, I think these "victims" were victims of their own greed, not predatory practices.

You are correct. People were willing to exchange a loan they wouldn't normally get for the risk that they couldn't pay it back.

My memory isn't the best when it comes to things like this, but didn't Congress have something to do with pushing lenders to work with sub-prime applicants?

[BarbaraGordon]

Things are often more complex than they seem. While there were indeed buyers knowingly playing the odds, a growing body of peer-reviewed academic studies show that certain demographic groups were deliberately targeted by sub-prime lenders because those demographic groups were known to be least knowledgeable of credit standing, credit options, and long-term consequences of contracts. They were considered a new untapped market for a profit-driven industry. This is what is meant when politicians use the phrase "predatory lending."

The problem is trying to figure out how to help those who were deliberately taken advantage of without offering an "out" for speculators and other financially-secure investors who signed the contracts knowing full-well the risks entailed.

[ERCougar]

Originally Posted by BarbaraGordon

Things are often more complex than they seem. While there were indeed buyers knowingly playing the odds, a growing body of peer-reviewed academic studies show that certain demographic groups were deliberately targeted by sub-prime lenders because those demographic groups were known to be least knowledgeable of credit standing, credit options, and long-term consequences of contracts. They were considered a new untapped market for a profit-driven industry. This is what is meant when politicians use the phrase "predatory lending."

The problem is trying to figure out how to help those who were deliberately taken advantage of without offering an "out" for speculators and other financially-secure investors who signed the contracts knowing full-well the risks entailed.

So...maybe we need to pick out certain demographic groups and make it illegal for them to get loans, as they're just too easy to take advantage of...

Would lottery tickets be considered predatory, since we know that most of these buyers are poor and have no clue what the odds are against them winning?

I guess I have a hard time believing they had no clue what they were getting into. Like I said before, it's just not that complicated. Interest rate at x for 3 years, goes up to as high as y after that point. Understanding that doesn't take a "white upper to middle class education".

I'm sort of sick of pandering to the VERY lowest common denominator.

Oh...and everything I've read (admittedly--can't cite sources) has pointed out the high proportion of these homes in the higher price ranges. It sounds like you've read different sources--any links?

[BarbaraGordon]

Originally Posted by ERCougar

Oh...and everything I've read (admittedly--can't cite sources) has pointed out the high proportion of these homes in the higher price ranges. It sounds like you've read different sources--any links?

I think we're talking about two different things. I'm talking about predatory lending. There was another market, primarily speculators and reasonably affluent families, who deliberately took the ARM risks hoping to cash in on the real estate boom or just simply to snag a 4000 s.f. house instead of a meager 3000 s.f. house. I'm not denying that took place, and that's what has put certain housing markets in the west at risk, but that's not what is meant by predatory lending.
Nationally, the market tapped by "predatory" lenders was made up of low income - especially minority - families trying to get into their first home or trying to refinance just to make the payments on their existing homes. You can argue "well, if they couldn't afford the payments they shouldn't have signed for the loan," but the evidence is that they were shown numbers and reassured by the loan officers that they *could* afford the payments. Where I live, translators were conveniently provided on site for immigrant families who couldn't read the contracts or negotiate the terms themselves.

By 2001 subprime lenders accounted for more than six percent of all home purchase
lending, up from just one percent in 1993. For lower-income households [of all races] living in lower-income
communities, the subprime share topped 10 percent. For the same population, subprime
refinancing loans accounted for a striking 27 percent of home refinance loans, a more than
fourfold increase in market share over the period 1993–2001. For low-income African
Americans living in lower-income communities, the subprime share of home purchase loans was
18 percent and 42 percent for refinancing loans...

There is a pronounced gap between the ability of minorities and that of whites to secure
prime mortgages. In 2001 prime conventional lenders accounted for nearly three-quarters of all
home purchase lending to whites but less than 50 percent of lending to Hispanics and only 40
percent of lending to African Americans. While there are noticeable income differences, on
average, between borrowers of different races and ethnicities, the racial gap in prime lending
persists even after controlling for borrower income. Indeed, a white borrower with an income of
less than 80 percent of area median has about the same likelihood of obtaining a prime mortgage
as an African American borrower with an income in excess of 120 percent of area median.

http://www.jchs.harvard.edu/publicat...nce/w05-11.pdf


Foreclosures in NYC, 2006. You can see that while there were foreclosures everywhere, the less desirable minority neighborhoods are being most affected. Foreclosures rose 50% in 2007.



There are bibliographies available all over the academic web if you're wanting to read more.

[ERCougar]

Originally Posted by BarbaraGordon

I think we're talking about two different things. I'm talking about predatory lending. There was another market, primarily speculators and reasonably affluent families, who deliberately took the ARM risks hoping to cash in on the real estate boom or just simply to snag a 4000 s.f. house instead of a meager 3000 s.f. house. I'm not denying that took place, and that's what has put certain housing markets in the west at risk, but that's not what is meant by predatory lending.
Nationally, the market tapped by "predatory" lenders was made up of low income - especially minority - families trying to get into their first home or trying to refinance just to make the payments on their existing homes. You can argue "well, if they couldn't afford the payments they shouldn't have signed for the loan," but the evidence is that they were shown numbers and reassured by the loan officers that they *could* afford the payments. Where I live, translators were conveniently provided on site for immigrant families who couldn't read the contracts or negotiate the terms themselves.

http://www.jchs.harvard.edu/publicat...nce/w05-11.pdf


Foreclosures in NYC, 2006. You can see that while there were foreclosures everywhere, the less desirable minority neighborhoods are being most affected. Foreclosures rose 50% in 2007.



There are bibliographies available all over the academic web if you're wanting to read more.

Thanks for the sources. Interesting statistics.

I'd be curious to see the percentage of these loans (in total overall value) that went to lower income families. Obviously, the higher mortgage defaults are more crippling to the economy (and would cost more to bail out).

Regardless, we're still back to the point of what is the solution? Ban ARMs for everyone? Just for poor people? For some people (including myself), an ARM made perfect sense, as I was going to be in residency for less than the period of the ARM, and would then move. But, since some can't understand the concept of a rate hike, no one can benefit. It's pandering to the lowest denominator.

I have to admit that the longer I spend working with poor people, the more frustrated I am (and admittedly less compassionate) with their financial habits. I would never pay for the cars, cell phones, nail jobs, hair extensions, etc. that I routinely see people on Medicaid with. So I guess I'm not totally convinced that just because their income is lower, they're not greedy and trying to buy more house than they can afford.

[hyrum]

Originally Posted by ERCougar

Regardless, we're still back to the point of what is the solution? Ban ARMs for everyone? Just for poor people? For some people (including myself), an ARM made perfect sense, as I was going to be in residency for less than the period of the ARM, and would then move. But, since some can't understand the concept of a rate hike, no one can benefit. It's pandering to the lowest denominator.

I have to admit that the longer I spend working with poor people, the more frustrated I am (and admittedly less compassionate) with their financial habits. I would never pay for the cars, cell phones, nail jobs, hair extensions, etc. that I routinely see people on Medicaid with. So I guess I'm not totally convinced that just because their income is lower, they're not greedy and trying to buy more house than they can afford.

The problem ARMS are not the standard ones, but so-called "teaser-rate" ARMS. A builder, or other seller will want to get X price for the property, the buyer would be of the "monthly payment mindset" in terms of not wanting to spend Y per month. Instead of negotiating the price down to their affordability they would offer an ARM at a very low rate (and subsidize the interest rate themselves or by buying the points). The buyer can afford the house under the teaser rate. The assumption was that somehow they could refinance later (when they might have saved more downpayment and their house would have more equity because "house prices only go up", etc- not sure what logic they might have used to sell them on what to do on the day of reckoning).

I saw a news report where this practice was used by a big builder in one town in Colorado (in the Greeley area). The sales people would aim the pitch at Hispanics and ag workers. I think the pitch was convincing after a few people got nice new homes and everyone might have thought, well if the Joneses bought into it, why can't I also have new house, too? Anyway, today there are practically entire subdivisions that are foreclosed in that town.

I think that is what is meant by "predatory lending". What fraction of the mortgage problem today is truly due to predatory lending or just plain too optimistic buyers, I don't know. I suspect its relatively small percentage, but where it has occurred it can be very significant.

[ERCougar]

Originally Posted by hyrum

The problem ARMS are not the standard ones, but so-called "teaser-rate" ARMS. A builder, or other seller will want to get X price for the property, the buyer would be of the "monthly payment mindset" in terms of not wanting to spend Y per month. Instead of negotiating the price down to their affordability they would offer an ARM at a very low rate (and subsidize the interest rate themselves or by buying the points). The buyer can afford the house under the teaser rate. The assumption was that somehow they could refinance later (when they might have saved more downpayment and their house would have more equity because "house prices only go up", etc- not sure what logic they might have used to sell them on what to do on the day of reckoning).

I saw a news report where this practice was used by a big builder in one town in Colorado (in the Greeley area). The sales people would aim the pitch at Hispanics and ag workers. I think the pitch was convincing after a few people got nice new homes and everyone might have thought, well if the Joneses bought into it, why can't I also have new house, too? Anyway, today there are practically entire subdivisions that are foreclosed in that town.

I think that is what is meant by "predatory lending". What fraction of the mortgage problem today is truly due to predatory lending or just plain too optimistic buyers, I don't know. I suspect its relatively small percentage, but where it has occurred it can be very significant.

If the financer/builder is lying or somehow withholding information from the buyer, that is fraud and should be punished accordingly. It is much easier for me to imagine greedy buyers who can't look past next week (i.e. Americans in general) than it is to imagine widespread fraudulent lending. You're right--it would be interesting to see actual numbers that don't have an agenda behind them.

[hyrum]

Originally Posted by ERCougar

If the financer/builder is lying or somehow withholding information from the buyer, that is fraud and should be punished accordingly. It is much easier for me to imagine greedy buyers who can't look past next week (i.e. Americans in general) than it is to imagine widespread fraudulent lending. You're right--it would be interesting to see actual numbers that don't have an agenda behind them.

Well, they did trump up the prices, and of course after a few sales got to use those as "comps". At least one builder is being prosecuted because he helped buyers falsify information on the loan applications.

http://www.greeleytrib.com/article/2...NEWS/337973503