Blame bad mortgages on lying lenders

Jane Gabriele
Citizen Impact Team member

When the power goes out, you call a reputable electrician; when your car breaks down, you call a responsible mechanic. Why? They are experts in their fields and their reputation is their livelihood. It's reasonable to expect people to be able to hold the lending industry to the same standard. Yet they are pushing subprime loans — higher-interest loans for those with poor credit — despite the fact that these loans are avoidably unaffordable.

The public has been led to believe the subprime mortgage crisis is due to irresponsible borrowers making reckless decisions and buying "more house" than they can afford. According to The Wall Street Journal, the truth is that 61 percent of subprime borrowers in 2006 would have qualified for prime loans. Why did they accept subprime loans instead? Some would like to say that they are uneducated consumers. In fact, they are often misled to believe that one insignificant blemish on their credit report put them in a different credit classification or are simply told they had no choice.

Too often, when a borrower hires a broker, they believe that broker is looking out for their best interests. Sadly, that is rarely the case. Borrowers are not privy to the complex relationship between brokers and lenders. Borrowers have no idea that bonuses are given by the lender if the broker gets the borrower to agree to a higher interest rate than the one for which they qualified.

A licensed real estate appraiser generates an 18-page document outlining the value of your home. Who would question its validity? It is well-documented that brokers will indicate to less-than-reputable appraisers that they need the value to be unrealistically high so that a loan becomes more profitable. State licensing should insulate homeowners from this type of illegal manipulation.

Lenders have been known to pad their profits by concealing disadvantageous terms. One mortgage company was known to cover bad terms with "Sign Here" Post-It notes, have the borrower sign not knowing what they are agreeing to, then remove the note, making it appear that the borrower knew all along what terms they had accepted.

Borrowers are following the advice of lending professionals and getting bad loans. We can no more call them idiots than someone who gets scammed by a professional con artist. The lending industry has a professional obligation to the borrower and should receive consequences when their dishonesty or questionable ethics cost families their homes.

Gabriele, of Fairport, is an attorney and a member, Citizen Impact Team/Crime and Safety Squad.