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Insights on Predatory Mortgage Lending
Luke Erickson, University of Idaho Extension
Lucy Delgadillo Kathleen Piercy, Utah State
University
Purpose and Methodology This exploratory study
purported to identify salient characteristics of
the victims of predatory mortgage loans, and to
describe optimal strategies that should be
implemented to reduce predatory mortgage lending.
Using qualitative methodology due to the
exploratory nature of this research, twelve
mortgage lending professionals were
comprehensively interviewed.   Results Qualitati
ve results provided new insights concerning the
emotional characteristics of borrowers, and their
correlated vulnerabilities. These include
feelings of desperation caused by excessive
debts, including mortgage debts, and panic to
avoid loss of a home, or other possession, which
often leads to hasty subprime borrowing or
refinancing. Additionally, peer pressure and a
desire for instant credit were discussed as
emotional stimulants causing individuals to make
uninformed and hasty borrowing decisions. It was
also confirmed that borrowers, in general, lack
sufficient financial skills to adequately
discriminate between fair and predatory type
loans.  
Legislation vs Education According to
participants, legislative action to eradicate
predatory lending is slow, unresponsive and
heavily influenced by the subprime mortgage
industry itself. These statements are clearly
supported by the current state of the subprime
housing market. Government intervention and
regulation was far too slow for most American
families. Record levels of losses and
foreclosures plague our country largely due to
unreliable, unresponsive and biased legislation.
Therefore, it was unanimously held among
participants, that comprehensive financial
education of consumers is the most reliable form
of predatory lending protection for consumers.
Participants stressed that increased financial
education would benefit consumers in other
markets besides the housing market. They also
stressed that education should not be the only
form of protection, but ideally could serve as
the last barrier between a consumer and predatory
products and scams. Conclusions   Given these
insights, consumer education strategies should
focus less on short-term efforts such as
one-session workshops, and instead pursue
comprehensive life altering approaches such as
extensive partnerships with schools, universities
and community groups.
The Subprime Market Experiment Subprime home
loans, loans with higher than traditional rates
and fees, are only now beginning to be understood
by the American consumer. They have primarily
been given to families with low-income or bad
credit, and those who couldnt afford a home on
traditional terms. Subprime loans have had, and
continue to have devastating effects on some of
Americas most vulnerable households. In 2007
before lending standards began to tighten, the
national volume of subprime mortgage lending was
about half a trillion dollars, or about 1 in
every 5 mortgage originations. The easy money and
high commissions associated with subprime loans
attracted more than its fair share of unethical
and criminal activity. The subprime mortgage
market fostered an environment so rampant with
egregious abuses and consumer losses that a new
term, predatory mortgage lending, was coined to
describe it.