Owning your own home is the cornerstone of the American dream, and, thanks
to historically low interest rates, it's a dream that is more attainable
than ever for many Americans. But there is a hitch.
"Unfortunately, it turns out that it's a great opportunity for predatory
lenders to take advantage of folks, too," said Rep. Jim Cooper (D-Tenn.).
Cooper is helping Fannie Mae, which works to assure that mortgage money
is readily available in the market, launch a $2 million effort this summer
to assist victims of deceptive lending practices in Tennessee. It's called
HomeSAFE Nashville.
Low bank interest rates and hot real estate markets have produced a glut
of attractive-looking loan offers for home buyers -- the most attractive
loan offers most buyers have ever seen. Predatory lenders -- who use
deceptive practices to take advantage of ill-informed borrowers, by offering
loans with hidden fees and excessively high interest rates -- can blend
into the marketplace with the crowd of legitimate lenders.
"They can turn one's dream of homeownership into a nightmare,"
said Ralph Perry, director of Fannie Mae's Tennessee partnership office.
The nightmare is that exorbitant mortgage payments on predatory loans
often cause victims to lose their homes.
It is nearly impossible to know how many predatory lenders there are,
because it is often difficult to say what constitutes a fair loan -- particularly
when borrowers have bad credit histories, or otherwise fit the "high
risk" profile. Nevertheless, Perry said, the problem is serious.
The HomeSAFE program that Cooper and Fannie Mae are launching will use
a two-pronged strategy to attack the problem: It will rescue predatory
loan victims from mortgages that threaten to cost them their homes, and
it will educate potential victims on the basics of lending and credit
to help them avoid making deals with the devil in the first place.
"We ought to be doing everything we can to help protect people from
those who threaten their ability to keep their homes," Cooper said.
But, rather than attempting to legislate and regulate the hard-to-pigeonhole
practice of predatory lending, Cooper and Fannie Mae have sought out local
nonprofit organizations, lenders, and community groups to help limit the
problem through the HomeSAFE initiative.
"I think the kind of public-private partnership that HomeSAFE Nashville
represents is the ideal way to achieve this goal," Cooper said. Participating
organizations will provide not only financial assistance, but also legal
services, financial education, and public awareness campaigns.
The first step in HomeSAFE's war on predatory lending will be outreach.
Volunteers will fan out and distribute brochures in neighborhoods where
predatory lenders are likely to strike. The pamphlets will describe some
of the red flags to look out for when considering loan offers -- such
as loan terms that are based on a property's value, rather than the borrower's
ability to pay -- and recommend that people who think they might already
be victims of predatory lenders apply to HomeSAFE for help.
The Nashville Housing Fund will coordinate both the screening and counseling
services for HomeSAFE. It will look carefully at applicants' loans to
determine which ones are cases of predatory lending -- as opposed to
cases where borrowers with bad credit histories are charged high, but
fair, interest rates. The predatory lending victims will be referred to
HomeSAFE counselors.
The Tennessee Fair Housing Coalition, a partner in the effort, will provide
legal aid services, primarily to help negotiate borrowers out of their
predatory loans. The group could try to apply pressure on predatory lenders
by, for instance, generating local news coverage about the problem.
After those negotiations, another HomeSAFE partner, Affordable Housing
Resources (AHR), will pay back overdue fees on behalf of borrowers in
default. AHR will then help borrowers refinance their mortgages at below-market
interest rates. The lenders -- First Tennessee, Union Planters, National
Bank of Commerce, and Pinnacle National Bank -- will sell the loans
to Fannie Mae to free up loan money for less risky customers and to reduce
their exposure to potential defaults.
Perry predicts that the number of borrowers that HomeSAFE will rescue
from predatory loans will be lower than the number of people who will
be steered clear of predators' traps in the first place by HomeSAFE's
education and public awareness campaigns. But the end result will be the
same either way -- more homeowners with stable, affordable mortgages,
on which they are less likely to default.
Cooper has been a key supporter of the HomeSAFE effort as a public advocate
and fund-raiser, Perry said. "Cooper brought people to the table
who might not have been there, at least not this soon," he said.
