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Home >> Lending >> Home Mortgage
Was My Friend a Predatory Lending Victim?
My friend is a 68 year old woman. She has a home in Ohio. She refinanced her home with a local bank. The income that they used has me confused. They used her SSI welfare benefits for great-grandchildren that lived with her, rent paid for space in her garage from her ex-husband, babysitting money (the child was 4 at the time and was set to start school in the fall), and rental income from an apartment above the garage and house beside her.
I was a banker before I retired and our bank would have never approved such a loan using these types of income. The babysitting money was the biggest portion of her income and was not likely to continue. Leaving the rent paid by ex, welfare benefits for great grandchildren and babysitting money out this would have left her debt-to-income at almost 100%. They also did not request tax returns to validate her rental income; they just took rent receipts. This ultimately left the woman not able to make her payments when renters would move out. She called them and asked them to refinance her home to get the payment to where she could afford it. The child started school (and no longer provides baby-sitting income) and her ex does not rent space in the garage anymore. They did this. My friend is not stupid by any means, but she does have a 3rd grade education and when it comes to finances she really needs someone to hold her hand and walk her through it. The bank decided to refinance. They did not mail her the early disclosures and did not meet with her or communicate what the terms were. They only called her to set up a closing and she asked what her payment was and it was something she could afford, so she thought everything was fine.
She went to the closing and learned that the bank forgot to include taxes and insurance on her monthly payment. They stopped the closing due to no loan officers or loan clerks being at the bank that day. The title company said that she would take care of it and they rescheduled for the next day. The next day came and she signed the papers thinking that her monthly payment would be what was discussed in the beginning. About 2 days later the bank called and said that her coupon book was incorrect and they are mailing her a new one with the taxes and insurance included. This brought the payment up to something she could not afford.
She is now struggling to make the payment and is almost 90 days past due. I think this is on the line of predatory lending. The fees charged to this lady when all she was doing was combining two loans at the bank into one amounted to almost $5,000. The bank is governed by the FDIC. Do you think that we should take our case there? I am almost ashamed to be called a banker. I thought we were supposed to watch out for people. This bank in particular took what income they could to get the loan approved and did not worry if she could truly pay it back. Please respond ASAP as the bank is going to start foreclosure.
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 Predatory lenders often want the high fees without justification for them, or they want the property and loan low amounts based on the property value. No reputable bank makes a loan with the intent of foreclosing on the property. When a lender sells foreclosed property, it is more often at a loss on sale, than a gain. Rarely is money made on the lenders part in this transaction.
One question that is unanswered is what was her payment requirements before and after the refinance. Was her financial position improved? It does sound as though the lender did not work with her to ensure there was an affordable payment. A refinance to a still unaffordable payment only delays the inevitable.
Lenders do have a lot of discretion when it comes to a refinance. Often there is no need to verify income or sources of income because the lender has a debt and the borrower has a payment. The refinance doesn't change that so going through these steps only adds costs and delays the refinance. Also, when income is from a "minimum wage" source, stability is less of an issue because the income is often easily replaced with another "minimum wage" source.
This refinance may have helped your friend, it may or may not have hurt her. It did buy her some time, but without seeking a higher ability to repay her loan by generating additional income somehow, or by seeking out a better loan, she may lose her home. Urge her to speak with the bank and to seek a repayment schedule that she can afford. If this is unsuccessful, she could consult with an attorney who would better analyze her situation and loan terms and try to determine if the lender was abusive.
Published on BankingQuestions.com 1/10/07
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