A Fighting Chance

“prepayment penalties”: For example, “[There is] a new breed of dangerous mortgages—such as loans with introductory ‘teaser’ rates that reset after a few years to much higher rates; loans that did not require income verification; and loans with prepayment penalties that locked borrowers into high rates or risky terms. These loans were often made with scant underwriting and marketed without regard for whether they were suitable for the borrowers.” M. William Sermons, “The State of Lending in America.”


“The option adjustable rate mortgage (ARM) might be the riskiest and most complicated home loan product ever created.” Mara Der Hovanesian, “Nightmare Mortgages,” Bloomberg Businessweek, September 10, 2006. See also, “… lenders are seeing a rapid rise in defaults on a type of mortgage that gives consumers with good credit several different monthly-payment options. These mortgages, which are sometimes known as ‘pick-a-pay’ or payment-option mortgages but are generically called option adjustable-rate mortgages, are turning out, in some cases, to be even more caustic than subprime loans, in part because the loan balance and the monthly payments on some loans is growing even as home prices are falling.” Ruth Simon, “Defaults Rising Rapidly for ‘Pick-a-Pay’ Option Mortgages,” Wall Street Journal, April 30, 2008. See also Kat Aaron, “Predatory Lending: A Decade of Warnings,” Center for Public Integrity, May 6, 2009.

For more on how wide ranging the sales and purchase of these new mortgage products became, and what gave rise to the growth, see “The Financial Crisis Inquiry Report,” The Financial Crisis Inquiry Commission, US Government Printing Office, January 2011, 34, 68, 85, 425.

most deceptive products: “Approximately one quarter of all Latino and African American borrowers have lost their home to foreclosure or are seriously delinquent, compared to just under 12 percent for white borrowers.” See Debbie Grunstein Bocian, Wei Li, Carolina Reid, and Roberto G. Quercia, “Lost Ground, 2011: Disparities in Mortgage Lending and Foreclosures,” Center for Responsible Lending, November 2011.

According to another study, African American and Latino borrowers were 30 percent more likely to be steered into higher-cost subprime loans than similarly situated white borrowers. Debbie Grunstein Bocian, Keith S. Ernst, and Wei Li, “Race, Ethnicity and Subprime Home Loan Pricing,” Journal of Economics and Business 60 (2008): 110–24.

See also Sara Miller Llana, “Loans to Minorities Rise, but at a Price: The 30-Day Past-Due Rate for Subprime Mortgages Rose from 5.4 Percent to 7.1 Percent During 2005,” Christian Science Monitor, March 24, 2006.

Many giant banks settled mortgage bias lawsuits. See, for example, “Financial Fraud Enforcement Task Force Announces Settlement with AIG Subsidiaries to Resolve Allegations of Lending Discrimination,” The United States Department of Justice, March 4, 2010, http://www.justice.gov/opa/pr/2010/March/10-crt-226.html.

“Justice Department Reaches $21 Million Settlement to Resolve Allegations of Lending Discrimination by Suntrust Mortgage: Borrowers Were Charged Higher Fees Based on Their Race or National Origin in 2005–2009 Before the Company Implemented New Policies,” The United States Department of Justice, May 31, 2012, http://www.justice.gov/opa/pr/2012/May/12-crt-695.html.

Charlie Savage, “Wells Fargo Will Settle Mortgage Bias Charges,” New York Times, July 13, 2012.

Charlie Savage, “Countrywide Will Settle a Bias Suit,” New York Times, December 21, 2011.

pursued seniors like Flora: For example, “Equity-rich, cash poor, elderly homeowners are an attractive target for unscrupulous mortgage lenders. Many elderly homeowners are on fixed or limited incomes, yet need access to credit to pay for home repairs, medical care, property or municipal taxes, and other expenses. The equity they have amassed in their home may be their primary or only financial asset. Predatory lenders seek to capitalize on elders’ need for cash by offering “easy” credit and loans packed with high interest rates, excessive fees and costs, credit insurance, balloon payments and other outrageous terms.” “Helping Elderly Homeowners Victimized by Predatory Mortgage Loans,” National Consumer Law Center, 2008, http://www.nclc.org/images/pdf/older_consumers/consumer_concerns/cc_elderly_victimized_predatory_mortgage.pdf.

urged Americans to “tap” their home equity: See Ruth Simon, “Home-Equity Loans Hit Record Levels,” Wall Street Journal, January 20, 2005.