Section 33 Predatory Lending Generally

• Library: Consumer Law and Practice 2010

There is no one definition of predatory lending. James H. Carr & Lopa Kolluri, Fannie Mae Foundation, Predatory Lending: An Overview, p. 2 (2001) (Carr & Kolluri). According to a 2002 joint report by the U.S. Department of Housing and Urban Development and the U.S. Department of Treasury, predatory lending is defined as "lending that strips home equity and places borrowers at an increased risk of foreclosure." Souphala Chomsisengphet & Anthony Pennington-Cross, The Evolution of the Subprime Mortgage Market, 88 Fed. Res. Bank of St. Louis. Rev. 50 (Jan./Feb. 2006) (Chomsisengphet & Penington-Cross). Predatory lending encompasses all varieties of lending misdeeds and illegal and fraudulent behavior in connection with the marketing and financing of loans.

Many think that subprime lending is tantamount to predatory lending. It can be, but not necessarily. Subprime lending refers to the credit characteristics of individual borrowers. Office of the Comptroller of the Currency, Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, Office of Thrift Supervision, Interagency Guidance on Subprime Lending (Mar. 1, 1999) (OCC). Subprime borrowers typically have weak credit histories, low credit scores, and low debt-to-income ratios. Id. at p. 1. Under any circumstances, subprime loans have a greater risk of default and foreclosure compared with prime loans. Default is six times higher for subprime loans. Chomsisengphet & Pennington-Cross, p. 32. Appropriately marketed and...