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
The United States Attorney’s Office Eastern District of Pennsylvania. Predatory Lending. Retrieved October 31, 2011. http://www.justice.gov/usao/pae/Documents/predatorylending.htm
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:
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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...
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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.