Predatory lending: are you at risk? Some borrowers may be particularly vulnerable to abusive lending practices.

• Author: Worley, Barb

Did you know that predatory lenders are increasing their focus on Alaska and Alaskans? More than 65 percent of Alaskans now own their own homes, up nearly 10 percent in a decade, the second-highest growth in home-ownership rate in the nation.

Despite these gains, too many low-and moderate income families have seen the dream of home ownership become a nightmare because of predatory or abusive lending practices. Predatory lending generally occurs in the sub-prime mortgage market, where most borrowers use collateral in their homes for debt consolidation or other consumer credit purposes, or first-time homebuyers whose past credit practices make them targets for high-risk or predatory loans. Subprime lending serves an important role by providing loans to borrowers who do not meet the credit standards for the prime mortgage market; however, some borrowers in the subprime market may be particularly vulnerable to abusive lending practices.

A local representative from Consumer Credit Counseling Services reported a dramatic increase in the number of cases where Anchorage homeowners are losing or have already lost their homes as victims of predatory lending practices. In October 2001, three active cases were reported; in 2002, an increase of 25 cases was reported. Two of the cases were home improvement loans and involved the contractor and the lender. Consumer Credit Counseling had 38 clients report abuses in 2003 and in the first five months of 2004 received an additional 24. It appears many of these cases involve the same lenders operating under new business names.

WHAT IS PREDATORY LENDING?

Whether undertaken by creditors, brokers or even home-improvement contractors, predatory lending involves engaging in deception or fraud, manipulating the borrower through aggressive sales tactics, or taking unfair advantage of the borrowers' lack of understanding about loan terms. These practices are often combined with loan terms that, alone or in combination, are abusive or make the borrower more vulnerable to abusive practices.

And predatory lending is not just limited to mortgage loans. There are other sharks in the financial waters, such as payroll advance companies, rent-to-own, title loans and check-cashing agencies-all of which are high-interest, high-fee lenders.

Predatory lending practices tend to fall into four main categories:

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