Predatory Mortgage Lending: There Ought to Be a Law

AARP CONNECTIONS • APRIL 2001

About eight in 10 Americans over age 65 own their home free of any mortgage, according to an AARP survey. This represents a golden opportunity for predators who see high rates of home ownership as an opportunity to make generous profits at the expense of unwary consumers who lack comparative shopping skills demanded by today's aggressive marketing environment.

Predatory mortgage lending occurs when abusive financial institutions target desperate, credit-impaired homeowners for high-cost loans. A disproportionate number of victims are older people, particularly older women living alone. The need to finance home repair projects or pay off credit card debt often provides easy access to the homeowner's equity. Foreclosure is often the end result.

"I became incensed when I learned what's happening," says Illinois advocacy volunteer Lil Frankel. "People who worked all their lives can lose their homes."

Concerned about protection for its members and other consumers, AARP has made the fight to curb predatory mortgage lending one of its strategic priorities. This month, the Association is launching a multiyear initiative that focuses on three fronts: enlarging consumer education programs, advocating for legislative and regulatory reform at the federal and state levels, and continuing to litigate on behalf of homeowners struggling with predatory lending practices. Media events in four states - California, Georgia, New York and Ohio - will kick off the initiative and begin to raise awareness among AARP members and the general public about the destructive consequences of the practice.

According to Suzanne Miller, AARP California's managing director of Public Affairs, April events in that state will "give us an opportunity to reach out with concern for the victims' experiences, and, at the same time, to demonstrate that the remedy lies in a cooperative effort involving legislation, law enforcement, and consumer education and mobilization."

As the initiative develops, AARP will create a variety of resources to support state organizations choosing to combat these practices. "We are working toward creating a portfolio of materials so every state can have some assistance with their efforts," says Senior Program Coordinator Bridget Small. A sample of resources includes:

• messaging based on focus group research;
• radio public service announcements in English and in Spanish;
• analysis of the home equity advertising being used to target a local market;
• consumer education materials; and
• direct messaging to certain ZIP codes.

Predatory mortgage lending typically takes place in what is called the subprime market, where financial institutions extend high-priced loans to customers with impaired credit. The business is a legitimate service as long as overly aggressive techniques are kept out of the transaction. It becomes predatory when vulnerable consumers are subjected to practices such as:

• charging unusually high interest rates and fees;
• lending exorbitant amounts to people who clearly lack the ability to repay;
• "flipping" a loan, which is encouraging a borrower to pay off existing loans by taking out yet another costly loan; and
• using fraudulent or misleading sales tactics.

AARP's Predatory Mortgage Lending Initiative seeks to encourage protective legislation, vigorous law enforcement and the development of better consumer skills so people will compare prices, ask for references, and choose lenders carefully. This way, long-term investments in homeownership will continue to bear fruit as people age, comfortable and secure in their own homes.

AARP is working on pending predatory mortgage lending legislation in Georgia, Ohio and Oklahoma. AARP staff and volunteers are active on the issue in California, New York, Illinois, Michigan and Pennsylvania. Bills have also been introduced in Arkansas, Texas and Virginia. North Carolina and the District of Columbia have passed predatory lending legislation.