Panel Hears From Victims of ‘Equity Predators’

A former employee of a lending company on Monday provided a congressional panel with a detailed account of how he lured non-English speakers, racial minorities and the elderly into signing away their homes by taking on big loans that promised low monthly payments.

Testifying anonymously from behind a shield to members of the Senate Special Committee on Aging, the man helped lawmakers drive home a point: that Americans with low incomes and high equity in their homes need to beware of lending companies that offer attractive loan packages to consolidate bills and improve or refinance homes.

Because many of the lending practices technically are legal--and thus not subject to legislation--the hearing aimed to educate the public, especially those deemed most vulnerable, on how to avoid being victimized.

The lesson: “Ask lots of questions, and don’t sign anything until you’re satisfied with all the answers to your questions,” said Sen. Charles E. Grassley (R-Iowa), who chairs the committee.

Senators, legal aid attorneys, victims and the anonymous witness described how some lending companies, termed “equity predators,” wage full-blown mail, telephone and door-to-door campaigns to find customers who are equity rich and cash poor. Home equity is the market value of a property minus the outstanding balance of the mortgage.

With willing clients, these companies, who all agree represent a small percentage of the lending marketplace, engage in three basic types of practices:

* “Stripping,” in which companies provide high-interest loans based on the equity of customers’ homes, not on their ability to pay. This attracts clients with little, poor or no credit histories and fixed and limited incomes. At the hearing Monday, witnesses said they signed loans with interest rates between 17% and 31%.

* “Flipping,” in which customers are encouraged to take on successive loans to refinance previous loans. The principal of the new loan is used to pay off old loans, but companies profit from additional fees and charges and by extending the payment period of the new loan. By refinancing her loans five times, a 77-year-old widow who spoke at the hearing said her loan grew from $20,000 to more than $85,000 in six years.

* “Packing,” in which companies add overpriced or unnecessary products to loans, such as health, accident, unemployment and life insurance, then charge interest based on the inflated amount.

Committee members urged consumers to shop around for rates with different types of institutions. Many customers are unaware that banks, credit unions and savings and loans also offer equity loans--sometimes at lower rates than the lending companies that have contacted them.

When abuse is suspected, consumers should contact a local legal aid office and law enforcement agencies.