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Lenders contend subprime loans are legitimate and abuses are few. However, new Federal Reserve Board rules cover about 38 percent of subprime first mortgages -- in other words, two out of five of the loans involve some form of consumer abuse.
"My clients didn't go to the Harvard Business School," says lawyer Bill Brennan, a 33-year veteran of the Atlanta Legal Aid Society. Nationally, Brennan is one of a handful of poor folks' attorneys the lenders loathe. "Because they have lower incomes and are often uneducated, lenders feel they're there to be exploited. My clients know they've been wronged."
For race-conscious Atlanta, subprime lending is a real insult. Such loans in Atlanta were three times more likely in low-income neighborhoods than in affluent areas, and five times more likely in black areas compared with white, according to HUD. Even middle-class African-Americans in Atlanta were twice as likely to be forced into a subprime loan as poor whites.
And it's not that minorities are deadbeats. Banks are 60 percent more likely to turn down a loan application for a black compared to a white borrower -- even when there is no material difference in credit histories or income, according to a Federal Reserve Bank study.
Subprime mortgages are more than expensive; they're often loaded with what amounts to legalized hidden theft:
Catastrophes commonly come as devastating surprises to subprime borrowers. The industry often pouts that it can't force people to borrow money -- they can always say no. But thousands of cases have been documented of illiterate or poorly educated customers being hurried into signing voluminous documents that even a gaggle of lawyers would have trouble fathoming. Federal and state lawsuits document scores of deceptive practices by lenders. When all else fails, according to whistleblowers, some lenders have even forged borrowers' signatures.
For more than a decade now, some of America's largest corporations and financial institutions have been ripping off citizens with schemes that would make a Mafia don furious with envy.
When deregulation in the 1980s freed financial institutions of interest rate restrictions, Big Banking and Wall Street found they possessed legalized loan-sharking powers. No interest rate was too high, if you could find a way to con a customer into signing a loan agreement. No expensive gimmick -- typically credit insurance that's worthless to the consumer but provides big, effortless profits to lenders -- was too sleazy to pack into loans, concealed by blizzards of documents and mind- boggling language.
More important, no level of profit was beyond reach as long as corporate America was willing to plunge into the sewers of the underground economy -- previously dominated by bottom feeders such as pawn shops, back alley "bankers" and buy-here-pay-here used car dealers.
The lending industry's spin is that the big players are above reproach. Randy Lively, president of a lenders' trade group, American Financial Services Association, shrugs off criminal and unethical lending practices as "scams by a few scam artists."
True, there are scam artists and here-today-gone-tomorrow lenders. And, as Georgia Bankers Association President Joe Brannen notes, home repair rip-offs -- where, for a few thousand dollars in fix-up cash, owners are steamrolled into giving up good, low-interest first mortgages and totally refinancing their homes at usurious rates -- are the black heart of predatory lenders.
But it's not just tiny, hole-in-the-wall companies doing the dirty deeds. Among the biggest home repair predators, for example, was the Money Store, an aggressive, big advertising retail lender owned by First Union. The Money Store's abuses were so embarrassing, First Union eventually shuttered the company.
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