by Dan Krell
April is finally here, which means spring is around the corner and we celebrate another Fair Housing Month. When you think of Fair Housing Month, thoughts of celebrating equality among the diverse come to mind. This year, however, people are talking about the recent sub-prime mortgage meltdown as an indicator of how we are doing in promoting equality and fairness in real estate.
At first you might find it difficult to fathom how lending practices and fair housing go hand in hand. After all, isn’t mortgage lending a highly regulated industry? Aren’t lenders using exacting rules to qualify home buyers for mortgages?
The mortgage industry is vigilant in maintaining strict quality control standards as well as cracking down on abuses such as fraud. However, the saying “where there is a will, there is a way” holds true. There are unscrupulous people who continually scheme to make their fortune through blatant mortgage fraud and other dishonest practices.
Although there are new schemes that pop up every year, most schemes involve the use of straw buyers (fraudulent using another person’s information to obtain a mortgage), giving false information, and/or providing manufactured financial documents to obtain mortgage funding. Fortunately these folks get caught and end up in jail.
Another problem that contributes to issues in the mortgage industry is the forcing of clients to use a specific lender for a kickback (violating federal law). When this happens, it is common for the consumer to pay excessive fees, points, as well as having a higher than average interest rate.
Mortgage schemes like these are just a sample of lending abuses that occur. In addition to other predatory lending practices, all lending abuse preys on an uninformed consumer. Perusing the Mortgage Fraud Blog (mortgagefraudblog.com) you overwhelmingly get an idea of the extent of the problem.
Why talk about mortgage lending practices, predatory lending, and mortgage fraud during Fair Housing Month? The reason is that many of the abuses that occur in the lending industry are due to the targeting of certain classes or sub-classes of home buyers.
The problem does not lie with the mortgage industry per se. The problem extends from the lending industry to other professionals involved in the real estate transaction. If the settlement agent or Realtor is not already aware of the abuse, they may turn a blind eye when they become aware at settlement when they review the closing documents. If the home buyer catches on to the high fees and interest rate, they are sometimes guaranteed a refinance in a couple months by their Realtor or settlement agent (which is a common predatory lending practice).
Like many things in life, it’s not the tool; however, it is the tool’s abuse by the ill intentioned or uncaring that produces disrepute. It needs to be said that Sub-prime and interest only mortgages are needed and can be useful tools in the purchase of real estate. However these tools need to be used responsibly. A guide to mortgages and other consumer information can be found on the National Association of Realtors website (www.realtor.org/housopp.nsf).
This Fair Housing Month, let’s just not commit to practice fair housing, rather let’s assist others to practice fair housing by not turning a blind eye to their lapses.
This column is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of April 16, 2007. Copyright © 2007 Dan Krell.