The hitch is that it is likely to be difficult, if not impossible, to get conventional mortgage financing when the balloon comes due because the inflated sales price would make the loan-to-value ratio too high for a conventional market. Another way of steering the less sophisticated home buyer into the high-cost refinancing market. Collecting price data on subprime lending is extraordinarily difficult, as the author of this ar- ticle, one of my constituents, Professor Mansfield of Drake LTniversity law school, reported to the House Committee on Banking and Financial Services a year ago. As noted above, unlike the prime market, there is no advertising information about rates and points in the subprime market available to most consumers.
Furthermore, that information is not re- ported for any regulatory purposes. Some subprime lenders market it heavily, others very little. Thirty-five percent of borrowers taking out subprime loans are over 55 years old, while only 21 percent of prime borrowers are in that age group. The most common explanation offered by lenders for the high prices in the subprime market is that these are risky borrowers, and that the higher rates are priced for the higher risk. Neutral researchers have found that risk does not fully explain the pricing, and that there is good reason to question the efficiency of subprime lending. These statistics relate solely to pools of loans packaged as securities, where interest rate information is required by SEC rules for prospective investors.
Department of Treasury Comment on Regulation Z (HOEPA) Proposed Rulemaking, Docket No. Recently, three major lenders, Citigroup, Household, and American General, announced they will stop selling single-premium credit insurance. Subprime loans are 51 percent of home loans in predominately African-American neighborhoods, compared with 9 percent in white neighborhoods.
Blacks in upper-income neighborhoods were twice as likely to be in the subprime market as borrowers in low -income white neighborhoods. HUD, Unequal Burden: Income and Racial Disparities in Subprime Lending in America. Daniel Immergluck and Marti Wiles, Two Steps Back: The Dual Mortgage Market, Predatory Lending, and the Undoing of Community Development, p. Preliminary data indicates a similar picture of racial disparities in Iowa, though the researchers are awaiting the results of the 2000 Census income data to see whether the correlation in Iowa is similarly more correlated to race than income. We cannot accept statistics about delinquencies and foreclosure rates in the subprime market without also considering how the predatory practices — reckless un- derwriting, push marketing, and a philosophy of profit maximization — create a self- fulfilling prophecy. If neither risk nor legitimate market forces explain the high prices and disad- vantageous terms found so frequently in the subprime market, then online loans for bad credit in Indiana what does ex- plain it? Frequently, these are loans in search of a borrower, not the other way around, as was the case with the Iowa borrowers I spoke with this week. Some of these tactics could confuse almost anyone, but when the consumer is unsophisticated in financial matters, as is frequently the case, the tactics can be quite fruitful. While Federal and State laws require disclosures, for a variety of reasons, these laws have not proven adequate against these tactics.
Reverse competition: Price competition is distorted when lenders compete for refer- rals from the middlemen, primarily brokers and contractors. Even without rate upcharges, the brokers, who online loans for bad credit in Indiana may have an agreement with the borrower, often take a fee on a percentage-basis, so they have an incentive to steer the borrower to a lender likely online loans for bad credit in Indiana online loans for bad credit in Indiana to inflate the principal, by upselling, fee-padding, or both.
But if the broker turns that into 16 It is beyond the scope of my comments to discuss the relationship between risk and pricing. But it is important that policymakers look not just at delinquency and foreclosure rates without also looking at actual losses and revenues. But the broker has discretion to write online loans for bad credit in Indiana the note at 14 percent, and the broker gets extra compensation from that rate spread. He may get it all, or there may be a sharing arrangement with the lender, for ex- ample, the broker gets first 1 percent, and they split the other 1. The Eleventh Circuit has recently found that a referral fee would violate RESPA. The author found that the most likely explanation for the added cost was not added value, nor added services. Jack- son, Household International Professor of Law, Harvard Law School, pp. This online loans for bad credit in Indiana divided loyalty of the people in direct contact with the homeowner is particu- larly problematic given the complexity of any financing transaction, considerably greater in the mortgage context than in other consumer credit. Unfortunately, much predatory lending is a function of misplaced trust. These characteristics help explain why the market forces of standard economic theory do not sufficiently work in this market. Factor in the demographics of the larger subprime marketplace in which these play- ers operate, and we can better understand how and why it happens.
Definition Having looked at the context in which predatory lending occurs, we come to the question of definition. I know that some have expressed concern over the absence of a bright line definition. I do not see this as a hurdle, and I believe that Attorneys General are in a position to offer reassurance on this point. There is a real question as to whether a bright line definition is necessary, or even appropriate.