Poor Borrowers Vulnerable to Predatory Loans

Unscrupulous lenders to homeowners with poor credit ratings are using deceptive sales tactics to lure poor, elderly and minority borrowers into high-cost loans, according to a study released Thursday by a California advocacy group.

One-third of these so-called sub-prime loans may be predatory--involving misrepresentations or excessive fees and interest rates, the study by the California Reinvestment Committee found.

Many unsophisticated borrowers who could qualify for low-cost prime loans fall victim to aggressive marketing for higher-cost sub-prime loans, said the group, which lobbies for better credit access in poor and minority neighborhoods.

The group said common complaints include fees that skyrocket just before loans close, pressure from brokers to refinance repeatedly and wrap unsecured debt into mortgages, and failure to disclose how quickly adjustable-rate loans ratchet up to higher interest rates.

The group analyzed federal data and surveyed 117 people who took out home loans--mostly sub-prime--in 1998, 1999 and 2000 in the Los Angeles, San Diego, Oakland and Sacramento areas. The group called for tighter regulation and better efforts to offer prime loans in low-income and minority neighborhoods.

Officials at the California Assn. of Mortgage Brokers couldn’t be reached for comment.