The Ethics of Predatory Lending in the Housing Industry
The real estate industry is thriving with approximately sixty-eight percent of all Americans being homeowners. With low interest rates, 1st time home buyer down payment assistance programs, and government funded educational opportunities (i.e. the Home Ownership Center of Greater Cincinnati), the real estate and mortgage lending industries will continue to flourish. However, there are some unethical lending practices that are threatening the housing industry as a whole.
Those involved in the mortgage lending process have some duty to the borrower. They are expected to perform their specific duties in an ethical manner and have some form of direct or indirect contact with the client. Banks (Prime Market): Banks are lenders who generally handle all facets of the lending process through their own institution. They function differently from brokers in that they usually only service those clients with good credit ratings/scores of 700 or more. Mortgage Brokers (Sub-prime Market): According to HUD, the Department of Housing and Urban Development, mortgage brokers are involved in about sixty percent of all mortgage loan transactions. Brokers try to find the best loan for their clients by shopping their loan applications around to lenders who are willing to accept the clients credit package. Brokers generally service clients, known as B-C-D credit clients, with ratings/scores of 650 and below. In some instances, a major problem for borrowers is that a broker may work in the best interest of the lender as well. Furthermore, in some states they can act as brokers and lenders. Brokers can be considered dual agents. Brokers (1) originate loans using “table funding” provided by a pre-arranged buyer of the loan (2) originate loans using a line of credit from a bank/financial institution (3) originate loans using their own funds (4) bring the borrower and lender together in a transaction that they do not originate. Real Estate Agents: In most cases, Realtors refer borrowers to a lender or mortgage broker. They are paid a percentage of the sales price of a home. The seller pays a Realtors fee. Closing Agent: Closing agents perform property title searches and prepare documents for the actual closing of the sale of a home. Most closing ...
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...direct control over the agents who deal directly with the consumer. The practices of these independent agents cannot be easily controlled. As a result, corporations should require mortgage brokers to screen all of their loan applications to avoid any allegations of predatory lending.
In closing, it is my opinion that predatory lending is money driven trend that destroys everyone and everything in its path. The difficulty in defining where predatory lending originates, for each individual case, is that a great deal of work in the housing industry is done in partnerships and alliances with organizations, which present their own challenges for ethical conduct. In ending predatory lending, the challenge is not in generating ethical guidelines for all the organizations and licensed professionals involved. But it is in the application of how they conduct themselves and their business.
Works Cited http://www.MyFico.com--See Scoring http://www.HUD.gov--See def. of Mortgage Servicer http://www.HUD.gov--See def. of Mortgage Insurance Companies http://www.realtytimes.com/printrtpages/20000620_predatory.htm http://www.realtytimes.com/printrtpages/20000228_predatory1.htm
http://www.NAMB.org
Predatory lending usually occurs when financial institutions take unfair advantage of consumer’s financial needs by extending credit with terms that compensate them over and beyond the credit risk. Predatory lending comes in different forms, but always involve the consumer paying high interest rates and exorbitant fees. Some predatory lending practices include:
After the terrorist attacks of September 11, 2001 many New Yorkers and New Jerseyians were looking for a safe haven away from the turmoil of the aftermath. Many sought this refuge in the Pocono Mountains in Pennsylvania. Touting a short drive to New York City, many local home construction companies saw this as an opportunity to sell houses and turn a profit. Many of these companies were reputable and upstanding businesses that produced a quality product at a market ready price. However, some of these companies were not so upstanding and as a result many unsuspecting homeowners were scammed out of thousands of dollars and just as many ended up in foreclosure. It became very clear early on that something was not right with many of the new home transactions involving a company called Rain Tree Homes, and so the Y-Rent scam slowly unfolded.
The next portion of the chapter talks about how real-estate agents use information to gain power and wealth. Most real-estate agents have a better sense of knowing the condition that a home or apartment is in, and this gives them an upper-hand against the buyer or seller. Like the Ku Klux Klan, real-estate agents use secret words and information to
Leading up to the crisis of the housing market, borrowers got mortgages without understanding the terms. Banks were giving out loans to people the banks weren't sure could pay the money back. The closer to the crisis, the higher the frequency of illegitimate loans and mortgages. Because there were so many mortgages on houses that could not be paid back, millions of mortgages were foreclosed on, and the houses we...
The Dodd-Frank Wall Street Reform and Consumer Protection Act’s policies haven’t really been implemented to the extent that regulators would have liked. Although the legislation takes many steps in addressing systematic risks in the United States financial system and improving coordination among regulators, some critics believe that alternative options might have been more effective. The coming years will give us a better understanding of how well the Dodd-Frank Act addressed these concerns.
First, the causes of the foreclosure crisis must be examined. I don’t think that the causes are all that complicated. In the end, the cause is twofold: First, people were buying houses they couldn’t afford, and banks were lending money to these people. Second, banks were engaging in unscrupulous lending practices. They were charging people money that these people neither were expecting to pay nor were able to pay. They were advertising one interest rate and actually putting another in the contract. I’m not sure what the law says about this last bit, but that sounds a lot like ‘fraud’ to me. If my reader disagrees, then I ask him to imagine the following:
A real estate agent is a person who sells and rents out buildings and land for clients. This career is very important if you are buying a house, but you don’t really know what you’re doing. Real estate agents can help to guide you through the process, and answer any questions you have. Real Estate has always been around, it just wasn’t referred to as an actual occupation. Real estate companies didn’t start until around the 1950’s. People could now officially buy and sell houses, and make money from it at the same time.
Professor Baher Azmy and Professor David Reiss document how predatory home lending practices have become rampant throughout the country and, notably, among low- and moderate-income and African American communities in New Jersey. Their article analyzes this emerging problem as a sometimes devastating side effect of the rapid increase in American home ownership, an otherwise almost completely desirable phenomenon. Because predatory lending has been so difficult to define, states have struggled to regulate it. New Jersey, building on the work of a few other leading states, has drafted what many consider to be the new standard for predatory lending legislation, the Home Ownership Security Act. The article places the Act in the context of governing
Real estate agents are generally independent sales employees who provide their services to licensed brokers on a contract basis. In return, the broker pays the agent a portion of the commission earned from property sold through the firm, by the agents. They are familiar with local zoning and tax laws, and know where to obtain financing. A good real estate agent is informed about things like schools, tax rates, public transportation
The subprime mortgage crisis is an ongoing event that is affecting buyers who purchased homes in the early 2000s. The term subprime mortgage refers to the many home loans taken out during a housing bubble occurring on the US coast, from 2000-2005. The home loans were given at a subprime rate, and have now lead to extensive foreclosures on home loans, and people having to leave their homes because they can not afford the payments. (Chote) The cause and effect of this crisis can be broken down into five major reasons.
“One out of every two hundred homes will be foreclosed every month, making 205,000 new families enter into foreclosure,” Mortgage Bankers Association. The housing industry in the United States is undergoing an unfortunate crisis. There are way too many homes being foreclosed, which cause a ripple of problems.
Mortgage loans are a substantial form of revenue for the financial industry. Mortgage loans generate billions of dollars in the financial industry. It is no secret that companies have the ability to make a lot of money by offering a variety of mortgage loan products. The problem was not mortgage loans but that mortgage companies were using unethical behavior to get consumer mortgage loans approved. Unfortunately, the Countrywide Financial case was not an isolated case. Many top name mortgage companies have been guilty of unethical behavior. Just as the American housing market was starting to recover from its worst battering since the Great Depression, a new scandal, an epidemic of flawed or fraudulent mortgage documents, threatens to send not just the housing market but the entire economy back into a tailspin (Nation, 2010).
The first step to buying your home is assessing your financial situation. A person must evaluate how much exactly they can afford and borrow. Most people hire a real estate agent to find a home. A real estate agent can help in finding different homes that suit the person’s needs. At the Department of Housing and Urban Development’s website, “You'll want to start searching for a broker as soon as you decide to buy a home. Talk to several and find someone you think you'll be comfortable working closely with”(1) Having a wide range of options is always helpful. An agent can also help in negotiating the price, and showing what the potential buyer needs after finding a home. A buyer might also need the services of a lawyer, a loan officer, insurance agents, and an accountant. In all purchasing your own home is a daunting task if you plan on doing it alone.
The borrowers’ goals of Fraud for Profit Loan officials and other industry professionals commit fraud for profit by misstating, misrepresenting or omitting important details about their personal or their customers’ employment and income, current debts and credits, or the value of the property and its condition with the objective of getting mximum profits on a mortgage loan transaction. It is important to note that this type of fraud can be committed by any industry professional involved in the loan process. It can include the real estate agent, real estate appraiser, loan officer, credit and debt counselor, mortgage broker, insurance agent, escrow agent, builder and title company among others. Some industry professionals also work together with a specific network to defraud lenders and borrowers, and underwriters to take advantage of these people for high fees and share any profits on all provided mortgage-related services.
Individuals like the two young and rambunctious mortgage consultants portrayed in the film gave loans to anyone and everyone that could sign the paper, regardless of the recipient’s ability to pay the loan in full. It is doubtful that all consultants fully understood the ramifications of their actions, but undoubtedly the overall disregard for consequence was the start of the collapse. Mortgage consultants mislead and tricked people into loans they could never afford by playing on their desire to live the American dream. Distributing adjustable rate loans to individuals without jobs, without collateral is unconscionable. Unfortunately, from their perspective they were helping these individuals. In a twisted way, these consultants were acting ethically from a utilitarian point of view. The consultants won because they received utility in the form of a bonus for distributing the loans, and the loanee won because they could now afford the home of their dreams. What the consultants didn’t consider in their calculations were the long term results and utility of their actions, unethically building the flawed foundation of the housing