A short walk through low-income neighborhoods in major US cities
yields a distressing countertrend to today's home-ownership boom.
"For sale" signs proliferate - testaments to a sudden jump in
foreclosures in the nation's inner cities. The trend is seen from
Chicago to Miami to Philadelphia, a city where the number of
families who've lost their homes because they couldn't make their
mortgage payments has doubled since 1997.
A number of explanations are possible, including looser lending
standards in recent years and job instability among inner-city
But some consumer advocates are casting blame in another
direction: mortgage lenders who target unsophisticated borrowers
and negotiate deals with hidden costs and high fees.
Concern about "predatory lending" is particularly heightened now,
as low interest rates prompt many homeowners to refinance their
mortgages. States and cities - most recently Philadelphia - are
taking steps to protect consumers from such lenders, in an effort
to help poor and working-class residents keep their foothold in
America's middle class.
The crackdowns on mortgage lenders, which affect firms that
specialize in loans to people with poor credit as well as the
industry at large, are intended to protect people like the Thorpes,
who own a two-story home in Philadelphia's Olney neighborhood.
Trouble at the Thorpes'
When the couple chose to refinance the mortgage on their $35,000
house last year, they thought they'd get lower interest payments
and fewer bills after consolidating their debts. What they ended up
with were phantom fees, including a $2,700 service charge and a
$1,400 life insurance policy they didn't want. They now owe more
money than their house is worth, and are struggling to avoid
"I had no idea they would charge those kinds of fees," says Judy
Thorpe. "You're in there with three people saying different things,
and at no point do they give you the chance to look over the
The Thorpes are among thousands of US families to gain access to
loans in the past decade. The number of subprime loans (loans to
people with poor credit ratings) rose from 100,000 in 1993 to 1
million in 1999, according to the US Department of Housing and
As of 2000, about 5.5 percent of all subprime borrowers in the US
were seriously delinquent with their payments - a 1 percentage
point jump in just one year. In Chicago, subprime foreclosures rose
from 131 in 1993 to 5,000 in 1999.
The explanation, according to consumer groups and lawmakers, is
the increasingly unethical behavior of some mortgage and credit
Anecdotal evidence suggests that the outright illegal deals are
conducted mostly by individual scam artists.
But some practices - such as upfront balloon payments, withdrawal
penalties, and the targeting of the elderly and minorities - are
commonplace in mainstream lending. …