Subprime Lending Scandal
Was there a subprime lending scandal: you bet there was. With
so many subprime lenders having monetary difficulties, it is clear
that there were deceptive lending practices. Let us take a look
at this scandal.
The subprime lending scandal
is no longer breaking news; it has been going on for quite sometime.
A year ago, when New Century Financial Corporation filed for bankruptcy
protection it became clear to everyone that the subprime lending
market requires a closer look. What was really going on and who
were the real victims?
The entire mess was fueled by greed, pure unadulterated greed.
It was greed by the lenders who made money hand over fist loaning
money to people who perhaps should not have been able to qualify
for a loan. In many ways, it was greed by the subprime borrowers
too, wanting a home so badly that they did not walk away from illegal
bait and switch tactics. Instead, they signed the papers with new
terms that were not fully disclosed. Is it totally the corporations
fault, yes, because they targeted a demographic that they knew would
be most likely to succumb to these tactics.
Who are the real victims? Those families who are now losing their
homes and have little prospect for finding affordable alternative
housing. Tenants of borrowers whose properties are being foreclosed
on. These people are losing their homes through no fault of their
own. As per usual, it is the lower income families and minorities
who are the prey to most of the
predatory lenders. These people are lured into applying for
loans through deceptive advertising targeted toward their income
bracket. Face it, if you have excellent credit and are making six
figures or more a year, advertising for no credit check, no income
check, no money down, will not be as appealing to you because you
have more options.
However, if you are struggling and want the American Dream of homeownership
these ads get your attention. So you apply then what? They prequalify
you for a maximum amount that you cannot possibly afford (problem
#1). Then you find a home, the loan is put through and at closing,
you are told that you no longer qualify for the original loan terms,
instead you are quickly handed some papers that state the new terms
are at a higher interest rate, and perhaps the loan is an ARM instead
of a fixed rate. (Problem #2) At his point, you should walk out.
Deal breaker. Illegal bait
and switch, until you sign the papers. Then it all becomes legal
and here is where your financial ruin can begin.
Who falls prey to this? Usually those who feel they have no options
or those who do not understand the contract. It is most likely the
lower income, and minorities. Subprime lenders know this and count
on it. You see these tactics only work if the papers agreeing to
the change are signed. Then it all becomes legal. A challenge to
the change stating that this is an illegal bait and switch will
not only void the sale, but then both buyer and seller may have
legal recourse against the lender. This is why it is only done if
the subprime lender thinks they can get away with it.
Without a doubt, there are plenty of victims
in the subprime lending scandal. Unfortunately, corporations
come and go and those who are truly responsible rarely are held
accountable. Instead, the victims are the people and families who
lose their homes to foreclosures and loss of jobs.
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