Slide Show >>The Durham (N.C.)-based nonprofit Center for Responsible Lending estimated in July, 2001, that predatory mortgage lending is currently costing Americans more than $9.1 billion each year.
Lenders will argue that each one of these dollars represents a legitimate fee stipulated by a legitimate contract, that they are only viewed as predatory by borrowers who overlooked the fine print in their mortgage.
But ask Ted Janusz, who spent an interim period of his career learning the ins and outs of mortgage brokering as a loan officer in Columbus, Ohio, and he'll admit that what is really going on here is a game of subterfuge being played at the expense of borrowers with low credit ratings.
CONFESSION TIME. The strategy of lenders, he learned, is to maintain an uneven playing field with their clients. "The average person only gets a mortgage every seven years. How can you become good at something you do every seven years, especially if you're dealing with somebody who knows all the ins and outs and is doing this several times a day?" he recently told BusinessWeek.com.
After a year of putting up with what he felt was the industry's lack of integrity, Janusz left the business for good. Still, he felt he was privy to information that the public rarely gets to see. He vented his frustrations—and spilled his guts—in the 2005 book Kickback: Confessions of a Mortgage Salesman (Insight).
The book details the sophisticated traps lenders set for clients they see as suckers. "If somebody came in wearing cowboy boots and ripped-up jeans, those are the people you took to the cleaners on fees. That was the unwritten rule—we were looking for people we'd see as having less-than-perfect credit."
TUNNEL VISION. Lenders who found a mark would make sure the money was ending up in their pockets mainly through back-end yield spreads, or the so-called Service Release Premium. For example, they would tell the borrowers that they could have a 9% interest rate, but when the paperwork cleared, their low credit rating would force them into an 11% rate—often without the borrower even knowing it. The resulting dividends, thousands of dollars in each case, fell into the lenders' laps.
In his book, Janusz also highlights an array of common traps lenders use all the time, such as allowing a borrower to see an attractive interest rate offer and letting him think that's the only important consideration in a mortgage negotiation. "You hear companies offer fabulous rates, but what are they paying in closing costs to get them?" Janusz says. "It would be like comparison shopping for cars only looking at the headlights."
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