Officials Aim to Curb Loan Sharks
Hyman, Julie, The Washington Times (Washington, DC)
Ella R. Johnson lives in a quiet suburban neighborhood in Southeast Washington, in a home adorned with silk flowers and pictures of grandchildren and foster children. She may not be there much longer.
On June 16, marshals arrived with an eviction order to remove Mrs. Johnson, 76, and her 101-year-old mother from the house they purchased together nearly 10 years ago.
Mrs. Johnson said the marshals were stopped by the sight of her mother, Susie R. Brown, who will turn 102 later this month. They said they would need an ambulance to remove Mrs. Brown from the house, and that they would return in a few days.
The women's troubles began when Mrs. Johnson became ill a few years ago and fell behind on her mortgage payments because of medical bills. In 1996, she decided to take out a loan to catch up with payments.
Three years later, another lender, who had purchased the loan, foreclosed on her house. Mrs. Johnson claims she was the victim of so-called "predatory lending" practices by mortgage lenders, and stories like hers have inspired a movement to quell such abuses.
Critics say unscrupulous lenders target elderly members of minority groups, frequently women, with deceptive tactics. Though the problem is not new, rising public concern has prompted federal and local governments to consider a crackdown.
The departments of Housing and Urban Development and Treasury issued a report June 20 defining abusive lending practices and proposing regulatory and legislative remedies.
Consumer advocates cheered the proposals, as well as efforts by states, other regulatory agencies and members of Congress to take aim at predatory lending.
"Almost every part of the lending process can be manipulated into predatory behavior if the participants so choose," said Roy Green, legislative representative for housing and financial services at AARP, the over-50 advocacy group.
The HUD/Treasury report highlighted several tactics as "predatory," including:
* flipping - when lenders convince borrowers to frequently refinance their mortgages, charging high interest and fees;
* balloon payments - low monthly payments that balloon at the end of the loan;
* deception of national credit bureaus about borrowers' credit history to justify high rates.
Abusive loans are confined to the subprime, or high-interest, loan market. But not all subprime loans are abusive - they do provide opportunities for borrowers who cannot get loans from conventional lenders.
Subprime loan originations rose to $160 billion in 1999 from $35 billion in 1994. Total originations in 1999 amounted to $1.275 trillion.
But predatory loans are difficult to measure, since their definition is fluid and they are not clearly visible from examining balance sheets.
The amount of abusive loans is "anybody's guess really," said John Bancroft, managing editor of Inside Mortgage Finance in Bethesda, the source of the subprime figures.
Mrs. Johnson fits the typical profile of an abusive lending target, according to consumer advocates. She is elderly, black and female.
"I can't emphasize enough that this is a civil rights issue," said William J. Brennan, director of the Atlanta Legal Aid Home Defense Project, at a recent predatory lending forum at the Library of Congress.
Mrs. Johnson bought her house with Mrs. Brown for $167,000 in 1991, after her brother, who had been caring for her mother, passed away.
She was a government office worker and a foster mother, but has given up all work except a baby-sitting job to devote her attention to her mother, whom she cares for with the help of an aide.
"I try to do all I can, but it's really got me," she said during a recent interview at her home. "It's not easy, baby, it's hard."
A few years ago, Mrs. …