Legislation and Predatory Lending in the Mortgage Industry

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Legislation and Predatory Lending in the Mortgage Industry

The American Dream has been one of this nation's most enduring ideals of the

past half-century. Presumably, every young couple, low-income family, and incoming

immigrant hopes to one day produce 1.7 kids, obtain 1.3 cars, and of course purchase the

house with the white picket fence. But fulfilling these goals costs money; and the

aforementioned groups are among the least financially stable in the country. These

people's need for extra funding has led to the extension of credit to large segments of the population who were previously deemed unqualified. However, some lenders have tried

to take advantage of these people by granting mortgages to them at terms that are

deceptive and unfavorable. This practice is known as predatory lending and there is a

growing legislative movement all over the country to end it. However, there is a limit to

how effective even the best of these laws can be.

The fundamentals of finance dictate that loans to individuals with the highest risk

of non-payment should have higher interest rates than persons who are more likely to

repay. For this reason, mortgages to low-income homeowners usually have higher rates

than loans to more economically stable borrowers. These loans are known as sub-prime

mortgages and are perfectly legal. However, unscrupulous lenders can give illegally high

interest rates or add excessive fees, terms, and contingencies to the mortgages that

eventually makes them unaffordable. This becomes predatory lending and is illegal.

The illegality of predatory lending compels bankers to be creative in order to hide

what they are doing. Legislative actions taken within the last two decades have rendered

easily ...

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...datory Lending Law Saves Borrowers 100 Million Study Finds" Consumer Financial Services Law Report 28 August 2001

Lexis-Nexis. Baruch College

"ACORN Sues Household Over Alleged Predatory Lending Practices" Consumer Financial Services Law Report 27 February 2002 Lexis-Nexis. Baruch College

"Household Faces Another Predatory Lending Class Action" Consumer Financial Services Law Report 22 May 2002 Lexis-Nexis. Baruch College

"Coalition For Responsible Lending Analysis is First To Quantify Abuses" Consumer Financial Services Law Report 28 August 2002

Lexis-Nexis. Baruch College

"Household Settles Predatory Lending Charges For 484 million" Consumer Bankruptcy News 31 October 2002

Lexis-Nexis. Baruch College

Election Aftermath Creates Hurdles For Georgia Fair Lending Act" Consumer Financial Services Law Report 21 November 2002 Lexis-Nexis. Baruch College
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