Second of a Two-Part Series About Predatory Lending:

REALTORS® Can Stop Predatory Lending

By Kim Shindle

Predatory lending schemes affect REALTORS® and their clients – both the sellers and the buyers.

“In my market place, I’m unhappy to say we’re seeing way too much of it,” says REALTOR® Albert Perry of the Greater Philadelphia Association. “I think Philadelphia is an area where you’re going to see more predatory lending because there are a lot of low-income people and there’s a lack of education among buyers,” he adds.

“The reason it’s so prevalent is because there is a wide pool of buyers who don’t have the credentials to qualify for a mortgage. They’ve been to five or six banks and all they hear is ‘no.’ Then all of a sudden, they hear ‘yes’ from a predatory lender and they think the gates of heaven have opened. They are so desperate,” Perry says.

 Suburban West REALTOR® Robert Tyler sees predatory lenders targeting seniors who aren’t always aware of financial nuances. The programs often get seniors to refinance at high rates to help finance a renovation project. The deal drains the equity from their homes and leaves them in dire straits.

“Unfortunately it’s still going on,” Tyler says. “As REALTORS®, we try to find out where a client’s going for his mortgage and let him know if the companies aren’t up to snuff,” he says. “The poor are always a target for these predatory lenders. There are programs out there to help people with bad credit and agencies will work with them; it just takes additional time. I worked with a client for a year to get financing to do a transaction,” he adds.

The Pocono Mountain region has seen more than its share of predatory lending. Many of the cases prosecuted involved new construction. Builders, developers, mortgage brokers and appraisers were accused of targeting wealthy minorities from New York and New Jersey. The group was accused of insulating the price of a home by wrapping all of the closing costs and down payments into the cost, according to Veronica “Vickie” Brockelman, president of the Pocono Mountains Association. People ended up with homes with artificially elevated values and they weren’t able to sell them for what they owed on their mortgages.

“The state attorney general has clamped down on most of those violators. The market has had an increase in property values in the last couple of years,” Brockelman notes, “so some sellers have been able to recoup some of their losses. Others lost their homes through foreclosures. The foreclosure rates are still high but not as high as they were.”

Perry believes REALTORS® have an obligation to educate their clients about predatory lending. “It’s our job as buyer agents to dissect that loan for them and ask for a distribution of fees and suggest they get second opinions. I’m having some newer agents deliver me prequalification letters from lending institutions without doing due diligence to make sure their buyers are qualified,” he says.

Perry recently had a client who was preapproved for a mortgage through a friend. “I looked at her Good Faith Estimate and thought the fees were out of line,” he says. “I thought maybe she had bad credit. I suggested we get a second opinion through another bank, expecting that bank would say she didn’t qualify. The bank actually came back with a six-point swing in rates and points,” he says. “She would have paid through her teeth for a loan that clearly was not right.

“REALTORS® need to better identify red flags and ask questions,” he adds. “And they should be prepared to hear the answers, even if the answer is that their clients aren’t qualified for a loan. There are buyers who should be hearing ‘no’ and they’re praying for a positive answer and they’re paying a price. I’d rather try to counsel these clients for six to nine months to help them improve their credit and get them qualified to apply for some of the beautiful programs for first-time buyers.

“Matching the buyer with the lender who’s best suited is a challenge. We need to increase our knowledge of these products so we can recognize these warning flags and let our customers know. Too many ‘preapproval’ letters are worthless,” Perry says.

“At the end of the day,” Perry asks, “who has fiduciary duties to this client? You have an obligation to look into this. You want a track record of looking into things and getting the best deal for your client.”

Brokelman adds, “Eventually, the public will understand that having a REALTOR® involved in the transaction helps avoid these situations.”