By Sally Duros
Predatory, subprime, improvident? The mortgage industry is kicking
around big words these days as foreclosures come home to roost in
your neighborhood, on the next block, or maybe even in the house
Predatory lending is the criminal activity that we have become so
familiar with from headlines and news reports. The lender seeks out
a certain kind of homeowner — an elderly or disabled person — and
then coerces him or her into signing a complex document that in not
too long a time means they will lose their house.
“The predatory practices of the mortgage brokering industry were
designed in many ways to rip people’s equity out of their homes,”
says Thomas P. FitzGibbon Jr., executive vice president of MB
Financial Bank, Rosemont. He’s also an adjunct professor of finance
at DePaul University in the Real Estate Center.
Subprime lending had an honest beginning that has changed over the
past six years.
“Subprime lending was lending to the doctors and the lawyers,
people who had tremendous upside income potential,” says Robin
Coffey at Harris Bank. “Sometime between 1998 and 2000 that
changed, and it literally became getting a loan with no
documentation and getting a loan without any income at all.”
Subprime mortgages carry a higher interest cost, often with a lower
initial monthly payment that balloons after a period of time.
Improvident lending is a unique combination of the two that has
brought us these most interesting times.
“Improvident lending is defined as putting people into an
inappropriately designed mortgage product that creates a failure
scenario,” FitzGibbon says. “This is the debate that is going on in
the whole industry — whether there is a responsibility of the
lenders and their broker partners to insure that the product that
is being used is suitable.”
The Wall Street Journal reports that some states, including Ohio
and Pennsylvania, are calling on mortgage lenders and brokers to do
their best to put borrowers in loans that they are able to repay.
And last week, federal banking regulators proposed guidelines for
lenders who issue adjustable-rate mortgages to subprime borrowers.
Mortgage brokers, obviously, don’t want any regulation, saying it
would make providing mortgages too costly. We mustn’t forget the
uproar here in Illinois over HB 4050.
Buying a house or a condo is among the murkiest of transactions,
with brokers representing the buyer and seller, appraisers, home
inspectors, lawyers and others all showing up at the table in a
compressed period of time to sign an incredibly thick and complex
stack of legal agreements. But in recent years, the presence and
behavior of some mortgage brokers has made the transaction even
There is too much at stake for homeowners and for the health of our
neighborhoods for anything less than transparency.
“In the equities business, If I call on you as a stockbroker I
would have to do a suitability profile on you,” Fitzgibbon says.
“There are some basic principles that could be put on you to do
“There is a lot of push back from the mortgage industry. Maybe
because suitability, like predatory lending, is in the eye of the
beholder,” FitzGibbon said.
Credit: The Chicago Sun-Times -COPYRIGHT- Â© 2007 Chicago Sun-Times.