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Feeding frenzy 

Will Georgia legislators pull the fangs from unscrupulous lenders?

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"They told us we'd have fixed payments. They said I had a fixed rate. They told us the loan would be paid off in 15 years. None of that was true," Miss Ivey recalls.

What Beneficial had sold Ivey was a form of revolving loan, much like a credit card. "She'd make the minimum payment thinking she was 'paying her mortgage,' never realizing that it wasn't enough to reduce the loan," says Atlanta Legal Aid's Brennan.

Unlike most conventional mortgages, there was not a steadily increasing monthly amount applied to principal. During one 16-month period, from July 1996 to November 1997, Ivey made payments totaling more than $7,700 on her loan -- but the amount owned was reduced only $311. At the rate Beneficial was applying her payments to principal, it would have taken Ivey about 36 years -- and more than $181,000 -- to pay off the debt.

Payments on the loan started at $409 a month, but Ivey soon saw them creeping up and up. At the end of 15 years, and after having repaid more than $75,000 on a $34,500 loan, Ivey still would have owed about $20,000 of the original debt.

"I wanted out, but Beneficial said I couldn't get out, that I owed too much," Ivey says. "I learned that so-called 15-year loan would never be paid off."

Beneficial did have one solution, however. It wanted to "flip" the loan. The company suggested Ivey agree to terms that would have done nothing for her except create $101,000 in debt, not to mention additional fees and expenses. Her monthly payments would have left her will less than $100 a week for food, clothing, utilities, real estate taxes, insurance and medicine.

In other words, Beneficial soon would have owned Ivey's small house.

Ivey began attending meetings chaired by Sen. Fort. He referred Ivey to Citizens Trust, a community-based bank that has bailed out many Atlantans victimized by predatory lending. Citizens Trust lent Ivey $40,000 and cut her interest rate to a fixed 8.5 percent. Interest and honest-to-God principal payments are less than Beneficial's loan. Citizens' payments also include real estate taxes and property insurance, which Beneficial's didn't.

Ivey says: "I know that at the end of 15 years, I'll have paid the whole thing off. I'll still own my home."

The banking industry calls Ivey's story anecdotal, and claims such cases don't constitute evidence of predatory lending. Since you can't draw a line between what's predatory and what isn't, says Lively of American Financial Services Association, you can't define how big the problem is.

But the stats are there if you look -- and they paint a depressing picture.

Subprime mortgage lending -- predatory or not -- is a lucrative business, so much so that the number of high- interest, high-fee loans increased 900 percent in a five-year period ending in 1998, according to HUD.

Who is targeted for these loans? HUD reported that in black neighborhoods, subprime loans accounted for only 8 percent of refinancings in 1993 -- but 51 percent by 1998.

"It's reverse red-lining," says Sen. Fort, referring to the banking practice of not lending in largely African-American neighborhoods. As banks have consolidated, he explains, they've pulled branches out of minority neighborhoods. "And when the prime lenders leave, the predatory lenders move in. Often it's the banks that really own the subprime companies that take over when the banks leave."

A study by U.S. News & World Report shows that in 1970 the number of banks per 100,000 people was equal for white and minority neighborhoods. But by 1993, there were three times the number of banks serving whites as blacks. The resulting void in minority neighborhoods has been filled by the subprime outfits.

"Where you have subprime lenders, you have predatory lenders," lawyer Brennan says.

While it would be impossible to calculate the total number of victims, the biggest subprime players -- The Associates, Household and subprime divisions of major national banks -- have all been accused of abuses or agreed to settlements involving tens of thousands of consumers. The Fleet case in Georgia claimed 20,000 borrowers were deceived and fleeced. California sued Household in November, claiming large numbers of that state's citizens had been scourged by illegally high fees.

The general spin of the industry is that subprime lending makes money available to lower income borrowers and to people with damaged credit. But, few consumers really know how their credit is rated. Lenders use something called a FICO score. While your loan officer can see your FICO score (900 is the best, and the worst is around 375), you can't. Only California requires lenders to reveal the scores to consumers.

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