If you are considering taking out a loan to buy a house, or refinancing your mortgage, the wrong company could talk you into a deal so bad that you lose everything you've got, according to a community group that is fighting "predatory lending."
Ernestine Arrington of Sacramento, Calif., went to one of the country's biggest lenders, Household Finance (which also does business under the name Beneficial) to refinance a small loan. Arrington says she originally had no desire to refinance her home loan, which was at 8.25 percent interest, but Household talked her into it.
She ended up with two loans from Household, the first at 11 percent, the second a revolving line of credit at 20.9 percent. Arrington has an excellent credit record, and she should be able to refinance into a loan at close to 7 percent, saving her about $400 a month. But between the two loans, including origination fees of more than $10,500 and credit insurance she did not need or want for more than $9,000, she has no equity left in her
home. Without equity, banks are reluctant to make loans, and Arrington has been having a hard time finding one. In the meantime, her monthly payments take $1,403 out of her monthly income of about $1,650.
"I had no idea a mortgage company would do this to me, or that it could legally get away with it," said Arrington. "Now I'm working with ACORN to try to put a stop to it."
With ACORN's help, Arrington, like many other borrowers, was able to cancel her credit insurance and obtain a refund. In her case the refund was $5,381. But that doesn't get Arrington out of the other bad terms of her loan, and she says she wants to warn others to avoid falling into the same situation.
ACORN, the Association of Community Organizations for Reform Now, is a membership group of low- and moderate-income people based in 40 U.S. cities. ACORN has concentrated its efforts this year on opposing the practices of Household and other companies that it says engage in predatory lending.
ACORN National President Maude Hurd said there are several things borrowers can do to protect themselves:
Get loan counseling from a HUD-certified non-profit agency.
Ignore high-pressure sales techniques, including home visits.
Shop around. Up to half the borrowers who receive high-cost loans could have qualified for a lower cost loan from a bank.
Do not sign blank documents "to be filled in later."
If anything is different at closing from what you were told to expect, don 't be pressured into signing it.
Avoid lenders, such as Household Finance, with a history of making abusive loans.
Be careful of loan checks that arrive in the mail - many of them have outrageously high interest rates.
According to Hurd, Household's objectionable practices include selling borrowers over-priced credit insurance and financing it into their loans so that they pay interest on it (often without being aware they've purchased the product at all). Credit insurance is meant to pay off a loan in the event of a borrower's death or injury, but is much more expensive than term
life insurance, especially when paid for up front and financed into a loan.
"Household sells 'single-premium' credit insurance in the same kind of volume and through the same deceitful techniques as the Associates, a company being prosecuted by the FTC for this practice," Hurd said. "Many borrowers do not even know they have bought this insurance, and others have no idea how much it cost."
Household also charges high interest rates and fees, unrelated to borrowers' credit risk. And the company refinances loans (collecting excessive fees in the process) when these refinancings only hurt the borrowers, according to ACORN.
ACORN's campaign against predatory lending also includes a fight for legislative changes. Laws or regulations to ban predatory lending practices, or to prevent public money from being used to support predatory lending companies, have been passed in states and cities, including North Carolina, Illinois, Massachusetts, Washington, D.C., Chicago, and Denver. Predatory lending is likely to be considered very soon in the US Congress.
The most recent victory for opponents of predator lending was in
Philadelphia, where ACORN and other groups battled Household's opposition to win passage of a tough new ordinance by a unanimous city council vote on April 5.
ACORN members worked with the Philadelphia bill's sponsor, testified at public hearings, and held public demonstrations in support of the ordinance.
Household's lobbyists opposed the Philadelphia bill, claiming it would hurt business in the city. In May, Household and other lenders filed a suit to try to prevent the ordinance from taking effect.
"Household shamelessly pours money, which it has stolen from low-income borrowers, into pressuring governments to keep its methods legal," said Philadelphia ACORN President Carol Hemingway.
As cities, labor unions, and others seek to protect people from predatory lending, they are joining the campaign against Household by arguing that pension funds should not be invested in this company unless and until it gives up its abusive lending.
To find out more about predatory lending, or about how to find a good loan, or to get involved in ACORN's campaign visit ACORN's website at www.ACORN.org.
David Swanson, communications coordinator
ACORN, the Association of Community Organizations for Reform Now
739 8th Street SE
Washington, DC 20003
(202) 547-2500 p
(202) 546-2483 f