NewsFlash: Middle-Class Borrowers Also Get Screwed

You could be forgiven for thinking that predatory lenders really only go after poverty-stricken borrowers. However, a recent study by the San Diego Business Journal found that 73% of predatory loans were made to middle and upper-class borrowers.

The report, compiled by Bouton & Associates, a San Diego bank consulting firm, found 30,000 of 219,000 loans approved in 2004, or 14 percent, were considered predatory.

While 27 percent of the predatory loans were made to low- and moderate-income borrowers, a startling 73 percent of the borrowers came from either middle-income or upper- income census tracts, the report stated.

SAM GLOVER

Middle Class Borrowers Fall Prey to Predatory Lending [Mortgage Lending Abuse Law Blog]

Comments

Edit Your Comment

  1. Lewis says:

    A missing and important asterisk to this piece is the required thought about how “middle income” and “upper income” are defined.

    A family-of-four HOH earning $75K could certainly be considered upper income in a non-top 100 market, but in NY, LA, SF, Bos, Chicago… he or she would be hard-pressed to be a homeowner, and therefore a potential target for what some might consider predation, based upon what we’ve seen in this real estate bubble, for instance.

  2. thrillhouse says:

    middle to high income doesn’t make you immune to stupid.

  3. statolith says:

    I’m not at all surprised to hear that people took out ridiculous loans so that they could have the biggest McMansion they could find.

  4. bndocksnt says:

    @:

  5. bndocksnt says:

    @bndocksnt: Okay, what i meant to say (having some greasemonkey issues) is that having worked in the mortgage industry, you wouldn’t necessarily need to be stupid to fall victim to a predatory loan. In many cases loans are shipped around to so many offices (or if its all in-house, so many departments) that by the time the loan is approved it bears little resemblance to the original. After legal, underwriters, senior LO’s etc., have had a chance to make revisions to the loan, it becomes easy for the broker to fit some minor changes in that would result in higher kickbacks from the financier.

  6. CumaeanSibyl says:

    Pray tell, lenders, what am I missing that makes it a good idea to lend people so much money that they can’t pay anything but the interest?

    Seriously, someone explain this to me, because I’m really failing to understand.

  7. tedyc03 says:

    The lender doesn’t care about the interest. Here’s how it works:

    I loan you $100,000 at 5% annually with a 30 year repayment schedule. The total repayment is $193,255.20 assuming no fees on top of the principle.

    But as the lender, I’m not interested in sticking with the loan for 30 years. Nope. I sell the loan off in a bundle with other loans, which are then split up and sold to investers as shares. I as the lender sell the loan for $120,000, which means I make a cool $20,000.

    Do I care about you not being able to pay back the principle? Nope. Why should I? I’ve already made my profit. Screw you.

    And THAT is why debt was so easy to get – because investors were eager to buy the debts and lenders were willing to sell them.

  8. katana says:

    @tedyc03:
    some lenders are committed to not selling off loans. They’ll make their money by collecting fees and closing costs. But the majority sell them off.

  9. John Stracke says:

    From the referenced article:

    The report doesn’t define predatory lending,

    So it’s pretty much worthless, isn’t it? The report was conducted for the San Diego City-County Reinvestment Task Force, whose Website says, “The mission of the RTF is to spur private and public financing of affordable housing and economic development in areas suffering from disinvestment.”

    In other words, the news is that an agency whose job is to solve problem X paid for a report which can’t define X, but asserts that X is a Big Problem. Hands up all those who are surprised?

  10. SexCpotatoes says:

    “a startling 73 percent of the borrowers came from either middle-income or upper- income census tracts, the report stated.”

    The problem with equating “census tracts” is that it basically targets middle and upper class neighborhoods, where a lower class income citizen may be living in a middle class neighborhood, and needs a predatory loan to get by. The same could apply for middle class people living in upper class neighborhoods.

    The way that quote I pulled is stated, is there any suprise to that? People living beyond their means, DESPERATE to hold on to all the fancy shit they can’t afford, hmmn.