Mortgage Lending

To read about upcoming changes to the mortgage market, see this blog post.

Above:  Watch this video about the subprime mortgage meltdown.

For many decades, the American mortgage was widely respected as an icon of hope and security, serving as a valuable financial tool for millions of families.  Today, in the wake of the worst reckless lending spree ever, home loans have become a source of fear and uncertainty.  Analysts project that one in six American households with a mortgage will face foreclosure during the next four years – and 8 million will end up losing their homes.

The subprime mortgage market that wreaked so much havoc on our economy is largely inactive—for now.  But it is essential to enact reforms that will prevent another explosion of predatory lending when the economy recovers.  While many states have passed stronger protections against  abusive mortgage lending, their powers are limited and federal legislation is needed.

In an uncertain market where consumer protections remain weak, it is important to (1) work with a reputable lender who answers your questions completely, and (2) arm yourself with facts.

Mortgage Lending Facts and Stats

  • There were 3,157,806 foreclosure filings (default notices, auction sale notices and bank repossessions) in 2008, an 81% increase from 2007.  One in 54 homes received a foreclosure filing.
  • One out of five subprime mortgages originated during 2005 and 2006 will end in foreclosure.  Altogether, over 8 million homes will be or have been lost.
  • In mid 2008, analysts predicted that over 40 million homes not facing foreclosure would decline in value by an estimated $352 billion as subprime foreclosures lower the prices of surrounding homes.
  • Subprime, high-interest and high-fee mortgage lending grew from 8% of total mortgage lending in 2003 to 28% in 2006.
  • Of all subprime mortgages originated from 2004-2006, 90%  came with an exploding adjustable interest rate, 70% come with a pre-payment penalty, 75% included no escrow for taxes and insurance, and over 40% were approved without fully documented income.
  • More than one half of all African American homebuyers and over 40% of Latino homebuyers received a subprime mortgage in 2006.  In comparison, about one fifth of white borrowers received a subprime loan that year.

Mortgage Lending and the Economy

In recent years, investors on Wall Street were very eager to buy American mortgages, including high-interest subprime mortgages.  Mortgage brokers and lenders generated mortgages with Wall Street in mind – not the borrowers receiving them – and sold them quickly after originating them.  Wall Street investment banks used the subprime mortgages as the basis for creating a collection of highly complex securities, earning huge fees every step of the way. Ratings agencies rated even the riskiest of these mortgage-backed securities with AAA (the best) ratings, and the government did not step in to investigate or regulate this exploding market.

When housing prices began to fall and subprime mortgages began to default in ever greater numbers, the whole elaborate financial superstructure collapsed and fallout has resulted in the worst economic crisis since the Great Depression of the 1930s.  Without the epidemic of irresponsible subprime lending, the current economic crisis would not have happened.

Visit the Center for Responsible Lending to read more.

Predatory Mortgage Lending Practices

  • Loose qualifying standards:  Predatory mortgage lenders often fail to consider a family’s ability to repay a mortgage.  In many cases, lenders do not even require standard proof of income. Since they were going to sell the loan to Wall Street almost immediately, it wasn’t going to be their problem if the borrower couldn’t repay the loan.  Loose qualifying standards on mortgages are a major factor in the severity of today’s housing downturn.
  • Loan "flipping":  A lender "flips" a mortgage loan by refinancing it to generate fee income without providing any benefit to the borrower.  Flipping can quickly drain home equity and increase monthly payments – sometimes on homes that had previously been owned free and clear.  Senior citizens who may own their homes outright may fall victim to flipping.
  • Steering:  Predatory mortgage brokers and loan officers steered many borrowers into subprime mortgages, even when they  could have qualified for a prime loan.  This was no accident -- brokers were rewarded with higher fees when they sold borrowers more costly loans; the higher the cost to the borrower, the greater the reward to the broker.  Borrowers too often placed their trust in mortgage brokers whose financial interests (incentives) were in direct conflict with the interests of the borrowers.
  • Racial Targeting:  As early as 2000, government agencies found that African-American families living in upper-income neighborhoods were more likely to receive subprime loans than white families living in low income neighborhoods. Neighborhoods formerly subjected to "redlining," where they couldn’t get any loans at all, became the victims of "reverse redlining," where predatory subprime lenders flooded minority neighborhoods with abusive subprime loans.
  • Lack of Accountability:  No matter how abusive or even illegal a mortgage loan may be, no one but the original lender bears any legal liability for harm to the borrower.  Neither the Wall Street firms that buy loans and package them into securities, nor the investors who purchase the securities, have any accountability to the borrowers.  They therefore had no incentive to make sure that the original lenders were selling appropriate loans.

More information about mortgages
 

 DecriptionTitle
Date
Organization
ArticlePredatory Lending Scams Targeting First-Time HomebuyersJanuary 2008NEDAP
Brochure

Resources for NY Residents: Homeowner Resource Sheet (PDF) 

January 2008NEDAP
Brochure

Resources for NY Residents:
Senior Homeowner Resource Sheet (PDF)

January 2008NEDAP
Article

Resources for NY Residents:
Deed Theft

January 2008
NEDAP
Reporters' Guide
AFFIL's Neighborhood and Individual Impact of the subprime Mortgage Lending Crisis:  Reporter’s Guide (PDF) AFFIL
VideoMo'Money, Mo'Money, Mo'Money: How Greedy Corporations Destroy the American Dream California Reinvestment Coalition
VideoForeclosure Victims Share Difficulties with Countrywide
 California Reinvestment Coalition
ArticlePredatory Mortgage Lending California Reinvestment Coalition
Article
Seven Signs of Predatory Mortgage Lending The Center for Responsible Lending
ArticleGuarding the Golden Years: Reverse Mortgages Consumers Union
Resource List
Consumer Tips on Home Loans Consumers Union
BrochureHigh-Cost Home Loans: Don't Be a Target (PDF) (Available in English, Chinese, Korean, Russian, Spanish and Vietnamese) The National Consumer Law Center
ArticleHome Improvement Scams Alert The National Consumer Law Center
ArticleTips for Consumers on Avoiding Foreclosure "Rescue" Scams (PDF) The National Consumer Law Center
ArticleRefinancing Scams - Warning Signs and Tips NEDAP
BrochureSaving Your Home From Forclosure (also available in Spanish)2007Consumer Action
ArticleGetting the Home you Deserve: Advice for Mobile Home OwnersJune 2006
The National Consumer Law Center
ArticleWhat You Should Know About RefinancingFebruary 2006
The National Consumer Law Center
BrochurePredatory Lending Homeowner Alert (PDF)
January 2006
NEDAP*
BrochureDon't Lose Your Home (2006) How to Avoid Home Equity Loan Fraud (also available in Spanish)2006Consumer Action
Article
Shopping for a Mortgage? Do Your Homework First
August 18, 2005
The Center for Responsible Lending
BrochureTips for Consumers on Avoiding Foreclosure "Rescue" Scams (PDF)
August 2005
The National Consumer Law Center
Fact Sheet
Mortgage FactsheetJanuary 1, 2005
The Center for Responsible Lending

Studies, reports, and more data about mortgages

 DecriptionTitle
Date
Organization
 Testimony "The Private Sector and Government Response to the Mortgage Forclosure Crisis" December 8, 2009 Julia Gordon, The Center for Responsible Lending
Report
Adding Insult to Injury: Foreclosure Victims in Danger of Poll Challenges
October 22, 2008
ACORN
Report
Updated Projections of Subprime Foreclosures in the United States and Their Impact on Home Values and Communities
September 23, 2008
The Center for Responsible Lending
Report
Assets & Opportunity Special Report: Net Worth, Wealth Inequality and Homeownership during the Bubble Years (PDF)
September 13, 2008
CFED
Report
Beyond the Mortgage Meltdown: Addressing the Current Crisis, Avoiding a Future Catastrophe
June 25, 2008
Demos
Report
Attorneys General Take Action: Real Leadership in Fighting Foreclosures
June 10, 2008
ACORN
Report Steered Wrong: Brokers, Borrowers, and Subprime Loans (PDF)
April 8, 2008
The Center for Responsible Lending
Report
2007 Foreclosure Report
March 3, 2008
The Woodstock Institute
ReportPaying More for the American Dream: The Subprime Shakeout and Its Impact on Lower-Income and Minority Communities (PDF)
March 2008
California Reinvestment Coalition, and seven other organizations
Policy Analysis
How to Fight Foreclosures - State Policy Options
February 29, 2008
ACORN
Brief
State-by-state analyses of subprime losses
February 21, 2008
The Center for Responsible Lending
Report
Mortgage Lending to Traditionally Underserved Borrowers & Neighborhoods in Boston, Greater Boston and Massachusetts, 2006, by Jim Campen  (PDF)February 2008
AFFIL
Policy Analysis
HR 3609 - Compromise Bill Permitting Court-Supervised Loan Modifications Would Save 600,000 Homes
January 18, 2008 The Center for Responsible Lending
Report
Forclosed: State of The Dream 2008January 15, 2008
United for a Fair Economy
ArticleAvoid Predatory Lenders AARP
Resource List
Demos has complied a long list of in-depth studies on predatory home mortgage lending. Demos
Resource List
Predatory Mortgage Lending Policy Analysis
 The National Consumer Law Center
Policy Brief
Constitutionality of Applying Bankruptcy Code Amedments to Existing Mortgages (PDF)
November 17, 2007
The Center for Responsible Lending
ReportSubprime SpilloverNovember 13, 2007
The Center for Responsible Lending
Fact Sheet
“Toxic Mortgages” under HR 3915: Virtual Immunity (PDF)
November 2007
The Center for Responsible Lending
Fact Sheet
Bans on Yield Spread Premiums and Steering (PDF)
November 2007
The Center for Responsible Lending

Report 

Forclosure Exposure 2: The Cost to Our Cities and NeigborhoodsOctober 19, 2007
ACORN
ReportForclosure Exposure: A study of racial and income disparities in home hortgage hending in 172 American cities (PDF)
September 5, 2007 ACORN
ReportHome Insecurity: A set of reports on neighborhoods in trouble due to forclosureJune 19, 2007
ACORN
ReportFair Lending Helps Community Prosperity: An Analysis of Fair Lending Disparities in the Baton Rouge Metro Area (PDF)
June 2007
United for a Fair Economy
ReportSubprime Lending is a Drain on Home Owership: Analysis of the Relationship Between Subprime Lending and Forclosure (PDF)
March 27, 2007
The Center for Responsible Lending
ReportPaying More for the American Dream: Multi-State Analysis of Higher Cost home Purchasing Lending (PDF) March 2007
California Reinvestment Coalition
ReportSubsidies for Assets: A New Look at the Federal Budget (PDF)
February 2007
Consumer Federation of America
Comment
Comment on Nontraditional Mortgages (PDF)
January 29, 2007
CRA-NC
Legislative Summary
Analysis of Home Ownership and Mortgage Equity Protection Act (PDF)
January 7, 2007
The Center for Responsible Lending
Report2007-2008 Assets and Opportunities Scorecard2007
Consumer Federation of America
Article
Families Feel the Pressure as Mortgage Delinquency Rates RiseDecember 14, 2006
Center for American Progress
ReportWomen are Prime Targets for Subprime Lending (PDF)
December 7, 2006
Consumer Federation of America
ReportSubprime Locations: Patterns of Geographic Disparity in Subprime Lending (PDF)

September 5, 2006 

Consumer Federation of America
ReportInformed Consumer Choice in the Subprime MarketJuly 24, 2006
National Council of La Raza
ReportThe Impact of the Home Equity Lending Market on Latino ConsumersJune 9, 2006
National Council of La Raza
Report
Unfair Lending: The Effect of Race and Ethnicity on the Price of Subprime MortgagesMay 31, 2006
The Center for Responsible Lending
ReportExotic or Toxic? An Examination of the Non-Traditional Mortgage Market for Consumers and Lenders (PDF)
May 22, 2006
Consumer Federation of America
ReportHomeownership and Wealth Building Impeded: Continuing Lending Disparities for Minorities and Emerging Obstacles for Middle-Income and Female Borrowers of all RacesApril 2006
National Community Reinvestment Coalition
ReportKey Trends in Chicago Area Mortgage Lending: Analysis of Data From the 2004 Chicago Area Community (PDF)
March 2006
The Woodstock Institute
ReportThe Best Value in the Subprime Market: State Predatory Lending ReformsFebruary 23, 2006
The Center for Responsible Lending
ReportWho Really Gets Higher Cost Home Loans: Reports, 2003 - 20052006
California Reinvestment Coalition
ReportSubprime Cities: Patterns of Geographic Disparity in Subprime Lending (PDF)
Septenber 8, 2005
Consumer Federation of America
ReportThere Goes the Neighborhood: The Effect of Single-Family Mortgage Foreclosures on Neighborhoods (PDF)
June 2005
The Woodstock Institute
ReportFor Middle-Class Families, Dream of Own House Drowns in Sea of DebtMay 12, 2005
Center for American Progress
ReportPaper Tiger Missing Dragon: Poor Service and Worse Enforcement Leave Manufactured Homeowners in the LurchNovemeber 2002
Consumers Union
ReportMinority Subprime BorrowersOctober 2002
Consumers Union
ReportHome Equity ReformOctober 2002
Consumers Union
ReportElderly in the Subprime MarketOctober 2002
Consumers Union
ReportWomen in the Subprime MarketOctober 2002
Consumers Union

AFFIL is grateful to the Center for Responsible Lending for their help with this page.
Last Update:  January 2009.

Americans for Fairness in Lending (AFFIL) and Americans for Financial Reform (AFR) are partnering to reform the nation's lending industry and financial system to protect Americans' neighborhoods, homes and pocketbooks.

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