The Myth of Predatory Lending

The media is flooded with stories about the predatory lending crisis, in which unsuspecting homebuyers are allegedly duped into taking out loans that they can't afford. While I sympathize with those who are losing their homes, the responsibility for the rash of foreclosures usually falls on the buyer.

In Ohio, foreclosures jumped an astonishing 88 percent in 2007.

Rick Armon of the Akron Beacon Journal recently profiled 44-year-old Charmain Finegan, who lost the home she shares with her boyfriend and their 14-year-old daughter. The story focuses on the sad day of their eviction before breaking down the couple's finances.

The couple bought the home in 2003 to escape the escalating crime in their housing project. Unfortunately, the couple was unable to make the house payments after hard times struck.

"So Charmaine and Archie sought a home loan," the article says. "They knew it would be tight."

Okay, stop right there. They knew it would be tight. When you buy a home, you can't expect your financial situation to always be the same or better than it is on signing day. People lose their jobs every day for a variety of reasons - sometimes for no reason at all.

If you know it is going to be tight, go out there and get an extra income now. Put that money in a seperate account for the "what if". If you can't go out there and get that additional income, go to the library and read books on how to curb your current finances.

Charmaine brought home $1,000 per month as a cashier, while Archie collected $660 per month in SSI payments due to his rheumatoid arthritis.

"But the mortgage broker figured they could swing the loan payments," the article says.

Here's where the alleged predatory lending comes in. The mortgage broker is trying to close as many loans as possible, so he is always going to lean toward "you can do it!" It is the buyer's responsibility to say no.

The biggest problem came when the couple's expectations didn't match the words on their loan documents.

"Archie wanted a 30-year fixed-rate loan," the story said. "He wanted the homeowners' insurance and property taxes rolled into the monthly payment. The broker came up with $588.90 a month."

When it came time to sign the papers, the loan had an adjustable rate, not a fixed rate. The property tax and insurance were not included in the total of $588.90, so the real monthly payment was much higher.

"But Charmain and Archie never read the paperwork," the article says.

NEVER READ THE PAPERWORK? You're signing a legally binding document to secure the biggest purchase of your life! There's the fatal mistake.

You have to read the paperwork, or at least look at the major numbers. I work as a notary signing agent, and I've lost track of how many times the borrower has said, "Hey, those aren't the numbers we talked about!"

When that happens, they call the broker and work it out. Sometimes, they don't sign the papers. That's perfectly fine with me. It is your, the borrower, responsibility to know what you are signing.

The loan documents tell you specifically in plain English if this loan is a fixed rate 30-year, 15-year, or even adjustable rate.

If you have trouble understanding the paperwork, bring a friend. Many states have a three-day right of recission, so you could sit down and read every line of the documents to make sure you know what you are signing.

Charmain's interest rate went up after three years. She lost her job after a mistake in the checkout aisle and hasn't found a new job in the last year.

''I'd even clean toilets,'' she said in the article.

I don't know her situation, and I don't mean to pile on, but the newspaper is filled with job listings every day. If you have a house payment due, you've got to go get the work. My wife lost her job. She was the sole bread winner. We haven't been able to replace her $38,000 a year job which she turned to $60k with bonuses and overtime. We've experienced and are living through the "hard times". We're out there everyday grabbing the jobs. They are out there. You have to look.

Phillip Morris of the Cleveland Plain Dealer profiled another alleged victim of this predatory lending crisis. Marvel Collins Jr. spends $1,200 per month on lottery tickets and cannot afford his $1,300 house payment. You can read his story here and Morris' opinion of his readers' reaction here.

While there are some real alleged victims of predatory lending, many of these problems could be avoided easily. Before you sign the mortgage documents, ask yourself these questions:

1. Am I reading the obligations that I am promising to fulfill?

2. Do I understand what I am reading?

3. If we lose a job, will we lose this home?

4. Am I doing everything I can to avoid losing this home?

Being honest with yourself - and being an educated consumer - will keep you from becoming another headline. Don't blame predatory lending, people, just read your paperwork.