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Handout: “Predatory Lending: Banks
Trick Poor into Expensive Loans”
Laid off after 29 years of working for
a local telephone company in North Carolina, Roberta Green
was struggling. Although she had a part-time job driving
a school bus, she was not earning enough to pay her bills.
When she received a call from a man who said he could help
her come up with some cash, it seemed like a godsend. The
man said he worked for a home improvement company and that
he could find her a loan that would both pay for some remodeling
on her house and leave enough cash left over to pay her
bills.
Unfortunately for Green, the salesman
actually worked as a mortgage broker for [a local brokerage
firm], and he was not peddling home improvement, but a refinancing
of her existing home mortgage at a high interest rate. He
invited Green to his office, where he chatted with her while
he filled out a mortgage application for her. While he indeed
gave her a “good-faith estimate”—a form required
by regulators that lists the proposed interest rate and
fees on a loan—the loan he wrote up was not a home
equity loan for the $6,000 she needed to pay off bills.
It was a loan for $76,500 that refinanced her entire mortgage
at a higher interest rate.
A couple of weeks later Green signed the
loan papers and walked out with a check for $1,900. The
signing went by so fast, Green didn’t catch all that
was written on the pages. But she trusted the broker and
the lawyer in the room, and felt she had a pretty good grasp
on what she was signing.
What Green didn’t realize was that
her loan terms had changed since she received that good-faith
estimate. The broker had added $6,500 in fees to her loan,
and changed the loan from a fixed-rate to a more expensive
adjustable-rate mortgage. Green was a victim of predatory
lending.
Comprehension and Discussion Questions
1. What does the word “predator”
mean? (You may know the word or have figured it out from
context and discussion. If not, please use a dictionary
to find its meaning.)
2. From the above reading and your familiarity
with the word “predator,” how would you define
predatory lending?
3. What is a home equity loan?
4. What are some things you might do to
avoid being in the same situation?
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