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In an effort to educate home buyers and therefore, mortgage-seekers, about "predatory lending", the National Association of Exclusive Buyer Agents (NAEBA) has created a consumer brochure about abusive lending practices.

Amidst the turmoil created by the media, advocacy groups, lawmakers, regulators, and lender groups, NAEBA has pledged to do their part to help end abusive lending practices NAEBA, a trade association that promotes buyer representation through exclusive buyer agents, is advocating full disclosure in every real estate transaction.

Current president, Ron Henderson, of Fidelis Exclusive Buyer Advantage in South Carolina, believes that disclosure does not add to the cost of the transaction or financing and it allows consumers to accurately assess the services and products.

Predatory lending can be defined as loans placed through high-pressure sales tactics that force consumers to accept real estate financing with high costs. Sub-prime mortgage lending has boomed in recent years and consumers have been victimized by excessive fees, too many 'points', high interest, credit life insurance, prepayment penalties, and the encouragement to refinance too often so that lenders can get extra fees (flipping).

Sub-prime lenders promote their products to borrowers with credit problems who may not otherwise be able to obtain a loan. Generally their loans are not government-backed and they are pitched in low and moderate-income neighborhoods.

Grassroot activists with ACORN, the Association of Community Organizations for Reform, list examples of abusive lending practices on their web site:

• Requiring borrowers to purchase unnecessary life and credit insurance and adding those costs to the loan amount.
• Using high-pressure sales tactics to encourage repeated re-financing by existing customers and tacking on extra fees each time, a practice known as "flipping".
• Charging customers higher interest rates and fees than their credit warrants.
• Obstructing customers from refinancing with other companies to gain better terms.
• Misrepresenting the terms and conditions of the loan.

ACORN was successful in getting Ameriquest to create "best practices" guidelines to help end abusive lending practices. They include:

• A one week "rescission" period -- instead of the legally required 3 days -- to allow borrowers to take the final, signed loan terms and compare competing terms from other potential lenders or seek advice from other sources and then, if necessary, cancel the loan.
• Full and timely disclosure of loan terms and conditions in plain English.
• Determining, before a loan is made, whether an applicant has the ability to pay the loan back to reduce the risk of default and foreclosure.
• A prohibition against "flipping" its loans through frequent efforts to persuade borrowers to refinance their loans.
• A prohibition on balloon payments and negative amortization loans.
• Reporting borrowers repayment histories to credit bureaus, to allow borrowers who make on time payments to improve their credit ratings.
• Marketing based solely on financial criteria, not based on age, gender, ethnic origin or income level.
• Creating a pilot program to donate foreclosed properties to community groups.

And the National Home Equity Mortgage Association (NHEMA) offers these recommendations to help consumers borrow in a responsible manner and protect their home equity and economic well-being:

• Borrow within your income and budget.
• Borrow for necessities and lower rates.
• Don't refinance too frequently.
• Beware of door-to-door sales.
• Know what you're signing.
• Don't sign blank documents.
• Don't be pressured.
• You can change your mind.
• Shop around.
• Complain if you think you've been cheated or treated improperly.
• Shop companies affiliated with trade groups demanding members follow a code of ethics and the law.

Pat Rioux

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