Predatory Lenders and California’s Foreclosure Crisis

By Richard Holober
Executive Director
Consumer Federation of California

Low-income consumers have a huge disadvantage when it comes to buying a home. Denied conventional home loans, their only avenue is the “sub-prime” credit market. These “predatory lenders” target people with bad credit records - typically offering to refinance an existing loan with one that is filled with excessive or unnecessary fees and usually provides no tangible benefit to the borrower.

These loans also often include adjustable rate mortgages with steep built-in rate and payment increases and more onerous prepayment penalties – and are usually approved with little or no income documentation required. Predatory mortgage lending drains family savings, eliminates the benefits of homeownership for a growing number of Americans, and often leads to foreclosure. Recent studies estimate that predatory market lending costs Americans $9.1 billion each year.

The Center for Responsible Lending (CRL) recently issued a report projecting a failure rate of as high as 21.4% for 2006 sub-prime loans in California, a level exceeded only by Nevada and Washington, D.C. Thousands of California consumers that were suckered into these agreements with initially fixed interest rates are now seeing their loans reset to a much higher level.

Recent data compiled by DataQuick Information Systems in January 2007, indicates that default notices jumped 145% in the last three months of 2006, accelerating a trend that began in late 2005 as home sales started to cool. Foreclosures are also on the rise - 6,078 in the last quarter of 2006 in California alone - up from 874 a year earlier.

Comments

Posted by: Richard Holober at April 7, 2007 12:38 AM

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