On January 28th, 2006, Assemblymember Laird joined with Assemblymember Simón Salinas, Congressmember Sam Farr and the Monterey County Housing Alliance (MoCHA) to hold a town hall forum on the dangers of predatory lending practices in the mortgage business. The purpose of the event was to raise awareness about the possible warning signs of this practice - a practice that can lead to devastating results for those who are simply looking to fulfill the "American Dream."

Several reports in the past few years have highlighted that along with growth in the housing market - both new home purchases and refinances - has come a rise in the number of possibly illegal lending practices. While the vast majority of mortgages and refinances are legal, it has been made clear by these reports that individuals must be on the lookout for unfair or predatory practices.

According to a June 2000 report from the U.S. Department of Housing and Urban Development and the U.S. Treasury Department, there are four main types of predatory lending. These categories were reported to the California Assembly Banking and Finance Committee in a hearing last year and they include:

• "Loan Flipping" - Some mortgage originators refinanced borrowers' loans repeatedly in a short period. With each successive refinancing, these originators charged high fees, including prepayment penalties that stripped borrowers' equity in their homes.
• Excessive fees and "packing" - While sub-prime lending involves higher costs to the lender than prime lending, in many instances investigators saw evidence of fees that far exceeded what would be expected or justified, based on economic grounds. It was also found that fees were "packed" into the loan amount without the borrower's understanding.
• Lending without regard to the borrower's ability to repay - One troubling practice involved lending based on borrowers' equity in their homes, where the borrowers clearly did not have the capacity to repay the loans. In particularly egregious cases, elderly people living on fixed incomes had monthly payments that equaled or exceeded their monthly incomes. Such loans quickly led borrowers into default and foreclosure.
• Outright fraud and abuse - In many instances, abusive practices amount to nothing less than outright fraud. The Department of Housing and Urban Development heard many stories from borrowers about fraud perpetrated by unscrupulous mortgage brokers, lenders, home improvement contractors, appraisers and combinations thereof. Using deceptive or high-pressure sales tactics, unscrupulous lenders in these markets often prey on the elderly, minorities and individuals with lower incomes and less education.

These types of activities occur throughout the country, but a study released just a few weeks ago by the California Reinvestment Coalition highlights communities in Monterey County as being some of the most affected in California. To learn more about this issue, please click on the links below.

Article in the Salinas Californian about the town hall meeting:
http://www.thecalifornian.com/apps/pbcs.dll/article?AID=/20060130/NEWS01/601300302/1002

California Department of Real Estate information:
http://www.dre.ca.gov/predatory.htm

California Reinvestment Coalition web page:
http://www.calreinvest.org/index.html

U.S. Department of Housing and Urban Development information:
http://www.hud.gov/offices/hsg/sfh/pred/predlend.cfm

Advice from AARP:
http://www.aarp.org/money/wise_consumer/financinghomes/a2002-09-16-ConsumerAdvocacyHomeLoans.html

"Don't Borrow Trouble" campaign from Freddie Mac:
http://www.dontborrowtrouble.com/