Subprime predatory practices.....

[exUte]

Originally Posted by BarbaraGordon

I have no idea what in the world you're talking about.

were targeted toward blacks/hispanics as detailed in the maps. So now the lenders are being accused of predatory practices that involved getting this demographic group into buying homes they couldn't and still can't afford. What is the government to do?

[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.

[BarbaraGordon]

Originally Posted by exUte

So now the lenders are being accused of predatory practices that involved getting this demographic group into buying homes they couldn't and still can't afford.

They weren't necessarily lured into homes they couldn't afford; they were lured into payments they couldn't afford. If you read the quote, which you clearly didn't, it indicated that if a white family and a black family applied for a mortgage on identical homes with identical incomes and identical credit ratings, the white family got a prime mortgate and the black family got a subprime. The black family is being foreclosed on and the white family, having a fixed-rate loan, is not. That's predatory lending, and it's a violation of the fair housing act.

Like hyrum said, nationwide I don't know what percentage of the subprime market was based on predatory practice, but in some areas it was so prevalent that entire communities are now at risk of economic collapse.

[ERCougar]

Originally Posted by BarbaraGordon

They weren't necessarily lured into homes they couldn't afford; they were lured into payments they couldn't afford. If you read the quote, which you clearly didn't, it indicated that if a white family and a black family applied for a mortgage on identical homes with identical incomes and identical credit ratings, the white family got a prime mortgate and the black family got a subprime. The black family is being foreclosed on and the white family, having a fixed-rate loan, is not. That's predatory lending, and it's a violation of the fair housing act.

Where does it say "identical credit ratings"? It discusses controlling for income but says nothing about credit ratings (correct me if I'm wrong).

[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

[BarbaraGordon]

Originally Posted by ERCougar

Where does it say "identical credit ratings"? It discusses controlling for income but says nothing about credit ratings (correct me if I'm wrong).

Apologies. Credit parity is addressed later in the paper.

There are any number of studies that have shown that even with other factors controlled, race and age are consistent determining factors in the type of financing offered by lenders.

[exUte]

Originally Posted by BarbaraGordon

Apologies. Credit parity is addressed later in the paper.

There are any number of studies that have shown that even with other factors controlled, race and age are consistent determining factors in the type of financing offered by lenders.

of greed. Buyers wanting something bigger than they could afford and hoping they could later. Sellers wanting to sell anything they could. Builders making huge profits. Mortage broker wanting to sell to anyone who could fog a mirror. Banks wanting to give away their money at high rates.

Looks like the greed snake bit everyone in the arsh.

[YOhio]

Originally Posted by exUte

of greed. Buyers wanting something bigger than they could afford and hoping they could later. Sellers wanting to sell anything they could. Builders making huge profits. Mortage broker wanting to sell to anyone who could fog a mirror. Banks wanting to give away their money at high rates.

Looks like the greed snake bit everyone in the arsh.

Well, at least you're not blaming it on the Jews.

[JohnnyLingo]

Originally Posted by BarbaraGordon

Apologies. Credit parity is addressed later in the paper.

There are any number of studies that have shown that even with other factors controlled, race and age are consistent determining factors in the type of financing offered by lenders.

Wow, that's just flat-out racist.

How do one justify such a practice? Two individuals, same credit rating, same income, similar homes... and you treat one differently solely because of race?

Amazing.