Targeting Seniors and those coming out of bankruptcy ...A must-read, from the Seattle Times, based on an analysis of 4,000 Ameriquest mortgages (and confirming my ad-hoc evidence ...):
Some loans were more predatory than subprime, with features so onerous that borrowers refinanced their way out of the American dream, losing their houses — and substantial equity — to mortgages they never stood a chance of repaying.
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Locally and nationally, nearly all [upwards of 97%] of Ameriquest's loans went to people who already owned homes, The Times found.
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Ameriquest declined to discuss The Times' findings, as did other industry representatives.
Lenders persuaded one borrower, a 79-year-old janitor, to obtain 10 subprime refinances over nine years.
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More than 70 percent of them also agreed to accept a "prepayment penalty" that would cost them thousands if they paid off the loan or refinanced generally within three years....
Locally and nationally, nearly all [upwards of 97%] of Ameriquest's loans went to people who already owned homes, The Times found.
...
Ameriquest declined to discuss The Times' findings, as did other industry representatives.
One blog asks if subprime lending is ethical, if it is reasonable to expect high default rates. These are the kinds of questions that you won't find managed in the common American textbooks on economics.
It makes you think.
I've long agreed with folks like Alan Greenspan that expansion of lending is beneficial.
However, perhaps the temptations to be predatory in certain markets are just too high.
There is little question (in my mind), for instance, that lenders have taken advantage of some of the military with products like "pay day" loans. What's odd in these circumstances, in relation to the standard econ jargon about moral hazard risks, is that the lender does not, often, have insufficient information. They know exactly what the pay grades are, how long a person is committed to the military (barring conduct discharge, etc.), and how much they can squeeze.
Not every loan that goes bad is the result of predatory practices, but clearly some loan products, especially those that compound various factors - including "late fees" - on the way to a liquidation event, are not suitable.
Years ago, someone told me that all this tapping of home equity was going to be a massive problem, one day. Nonplussed, I figured they were just being 'old fashioned' about debt and saw events as the normal part of financial innovation and the maturing of the markets for real-estate finance.
Now, looking in on how 'tap the equity' turned into a sport for lenders and, I can start to see the ugly side of how I was wrong ..
