Saturday, October 18, 2008

Bloodsucking Lenders


Bob Herbert called his piece Climbing Down the Ladder; I might have called it "The Bloodsucking Lenders of Transylvania County". His column describes an elderly widow in Rocky Mount, N.C. (in case you haven't guessed by now, Transylvania County) who may lose her house to foreclosure.
If you believe Ms. Richardson’s account, and I do, she was fast-talked into a mortgage that would have been impossible to pay off with her fixed income. Foreclosure would have seemed inevitable. But Ms. Richardson and her current lawyer, Carlene McNulty of Raleigh, N.C., said the figures that would have made it obvious to Ms. Richardson that she couldn’t afford the mortgage were deliberately concealed.
I think it goes without saying that there were lenders for whom deceit was a primary tool in closing loan agreements. I think we can all agree that the elderly as a group are more likely to be targeted by, and are more likely to fall for, predatory schemes involving their homes and money. But even then, a common thread in a lot of scams is "getting something for nothing (or next-to-nothing)" or "believing an offer that's too good to be true."

I don't know the background to the story Herbert shares, and I'm content to accept his impression that Ms. Richardson was scammed. But at the same time, I have to wonder what she received under her mortgage. Was she refinancing an existing mortgage for what she thought was a lower rate? Refinancing a mortgage and withdrawing equity for what she believed would be approximately the same rate? Or was this a new mortgage where she was receiving a substantial amount of cash in return for a mortgage payment that, in retrospect, was simply too good to be true?

I can see a lender targeting her for a "too good to be true" deal - "Refinance your current $80K mortgage, pull out $60K in equity to pay off all your bills, buy a new car, and redecorate, and your monthly payment only goes up $45! [until the teaser rate expires]" Who wouldn't want to believe that? Mix in a vulnerable population to target, and you have a formula for big, ill-gotten profits.

But at the same time, how do we get past that part of human nature that just doesn't want to hear the message, "There's no such thing as a free lunch"? (And if we accept that we can't - that at some level, all of our educational efforts will fail - what else can we do?) If we can't answer that, whatever the nature of the scheme or scam, it's another case of "same story, different day".

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