During the late 1990's and into the 2000's the United States saw a dramatic increase in a form of legalized robbery known as predatory lending. Predatory lending means imposing unfair and abusive loan terms on borrowers, often through aggressive sales tactics, taking advantage of borrowers' lack of understanding of extremely complicated transactions, and outright deception.
Predatory loans turn the dream of homeownership into a nightmare, in the worst instances ending in foreclosure. The damage done is increased by the fact that predatory loans are made in such concentrated volume in poor and minority neighborhoods where better loans are not readily available, and the loss of equity, and foreclosure can devastate already fragile communities.
Predatory lending tends to be concentrated in the subprime loan market. There is a place for responsible subprime loans, where somewhat higher interest rates balance the genuinely higher risk of lending to borrowers with past credit problems. More recently, however, too many subprime loans have included abusive terms or conditions, too many have rates and fees much higher than can reasonably be justified by the credit records of the borrowers, and too many are going to borrowers who could and should qualify for loans at significantly lower rates.
Predatory lending practices include:
• Financing Excessive Fees into Loans
• Charging Higher Interest Rates Than A Borrower's Credit Warrants
• Making Loans Without Regard to the Borrower's Ability to Pay
• Prepayment Penalties
• Loans for Over 100% Loan to Value
• Yield-Spread Premiums
• Home Improvement Scams
• Single Premium Credit Insurance
• Negative Amortization
• Loan Flipping
• Aggressive and Deceptive Marketing - The Use of Live Checks in the Mail
Some practices that can be predatory:
• Balloon Payments
• Property Flipping
ACORN's Campaign to Stop These Practices
For over two decades, ACORN waged a campaign against redlining, worked to increase access to credit for low-income and minority neighborhoods, and fought for greater community reinvestment by financial institutions. Many banks and mortgages responded with loan products that better met communities' needs. ACORN's sister organization, ACORN Housing Corporation, used these products in their homebuyer counseling and education program (ACORN's First Time Homebuyer Program) to help over 45,000 low- and moderate-income families become homeowners. Despite these accomplishments, the banking industry as a whole continued to ignore inner-city neighborhoods, leaving the door open to abuse by predatory lenders.
With their successful track record in taking on some of the country's largest financial institutions, ACORN decided to take on this new task of fighting predatory mortgage lending. ACORN tackled the issue from a number of different angles, including direct action against lenders and other industry players, education and outreach at the community level to help people protect themselves against predatory loans, legislation at the state, local, and federal levels, and regulatory change.