“Predatory Lending” occurs when a financial
institution charges home buyers or homeowners more
for standard services than is the norm for someone
with their credit rating. This in turn results in an
increase in the cost of home buying or home repair
by thousands of dollars for individual families.
These increased costs are found in interest rates
far above conventional loan rates; excessive
mortgage fees and points, often hidden in the
mortgage financing; up-front payment of credit
insurance; balloon payments; frequent refinancing;
huge prepayment penalties; and arbitrary call
provisions. These “sub-prime loans,” which are
targeted at homeowners with low incomes or damaged
credit histories and at African-Americans, often
result in the victims paying much more money than
they should, and in some cases they lose their
homes.
A 2000 study by the U.S. Department of Housing
and Urban Development (HUD) found that predatory
lending is increasing dramatically and is found
predominately in African-American and poor
neighborhoods. Between 1993 and 1998, the number of
sub-prime home refinancing loans increased more than
10-fold, accounting for more than $150 billion in
refinancing loans in 1998 (home refinancing loans
account for 80 percent of all “sub-prime loans.”)
Sub-prime loans are three times more likely in
low-income neighborhoods than in high-income
neighborhoods and five times more likely in
predominately black neighborhoods than in white
ones. Even upper income African-Americans are not
safe: the HUD study showed that home-owners in high
income African-American neighborhoods are twice as
likely as homeowners in low-income white
neighborhoods to have sub-prime loans. As a result,
homeownership can be far more costly for blacks and
poor families than for whites and middle-class
families.
Predatory lending is not only unfair and immoral,
but it is destroying individual lives, families and
whole communities.