By Broderick Perkins
Not all mortgage lenders exhibit predatory behavior.
Most lenders abide by a code of ethics, they disclose all lending terms and lend money only to those who can truly afford to borrow it.
But some sub-prime equity lenders are giving the industry a bad name and they are threatening the open market.
Sub-prime lenders offer loans to lower-income, more credit risky home owners. Because the risk is higher, the mortgage interest rate and other terms cost more than those paid by higher income customers with better credit records. Without such loans, riskier borrowers could not tap their equity at a time when there is so much to tap.
Some unscrupulous sub-prime lenders, are however, ruining both the credit lives of consumers and the future of the open equity loan market, says Jeffrey Zeltzer, executive director of the National Home Equity Mortgage Association.
In the latest issue of the industry's quarterly journal "Equity," Zeltzer presents what could be considered a self-serving attack against the flood of state-level legislation designed to end sub-prime lending ills.
It is, however, a compelling case against the rush to regulate away predatory lending behavior.
Zeltzer says laws that ban financing costs, mandate counseling and don't clearly define phrases like "unfair and deceptive acts and practices" could do away with the predators, but they will also hamstring lenders, decent sub-prime lenders and prime lenders alike.
Consumers the laws are designed to protect will suffer most, left with "credit rationing" and "a lack of legitimate borrowing options," Zeltzer says.
The media, charging in with its "public has a right to know" banner, has hounded the industry with reports of predatory lending and rightfully put the spotlight on the predators.
Unfortunately, along with consumer education in the media, a legislative barrage has followed. The new laws limit or ban closing costs, points and insurance, effectively curtailing consumers' ability to negotiate for the best loan.
To keep the cash flowing to those who need it, both consumers and the industry can work to help stop predatory lending without undue regulation.
When you obtain credit in a responsible manner, you not only protect your own economic well-being but you also help limit the scope of companies that would take advantage of you, NHEMA says. NHEMA advises you to:
Borrow within your income and budget.
Borrow for necessities and lower rates.
Don't refinance too frequently.
Beware of door-to-door sales.
Know what you're signing.
Don't sign blank documents.
Don't be pressured.
You can change your mind.
Complain if you think you've been cheated or treated improperly.
Shop companies affiliated with trade groups demanding members follow a code of ethics and the law.
The industry has a responsibility to watch the watchdogs. If the media doesn't get it right, if it sensationalizes the issue or otherwise uses a broad brush to paint a story that demands closer scrutiny and a fair and balanced account, Zeltzer says speak up.
Write the reporter a letter. Send the journalist an e-mail. Professional journalists welcome factual input.
"Do you know the local reporters who cover our industry? Give them a call. Let them know what's going on and give them our perspective about how bad legislations hurts consumers," Zeltzer says.
The public has a right to know -- the full story.
Zeltzer also advises lender groups to lobby legislators against passing laws that shut down the industry.
His article's one shortcoming is that it doesn't tell industry members to press law enforcement agencies to shut down predatory lenders.
He should and they should -- especially when class action and other suits send an obvious message that some companies are purposely out to take homes and leave consumers twisting in the wind.
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