"Trade Association Lobbying Congress for Industry Reforms"

Muriel was an ideal mark for equity predators.

A 68-year-old widow in Pensacola, Fla., the mortgage on her modest $90,000 home that her late husband's pension was covering only had about $15,000 left in it. She considers herself a savvy woman, and between her husband's pension, her own part-time job and her monthly Social Security check, she was living a comfortable if slightly spartan lifestyle.

Then she learned her home's foundation needed work. She learned this from a man who knocked on her front door. Though throughout what happened next she insists that it was her own fault, the hook was baited.

"I should have known better," says Muriel, who asked her last name not be used because she is embarrassed. "I should have, but I just assumed that was the way it was done."

The cost of the repairs was higher than market prices, and the repair company steered her toward a high-cost mortgage lender to finance the repairs. The contractor pocketed the loan proceeds, and, in one bit of unusual news, the work was done properly. But the price was rolled into her mortgage.

Barely six months later the same lender called her up to discuss debt consolidation with her. Still unaware the hole she was digging, Muriel thought it looked like a good idea.

Now, in total, she owes $27,000 on her mortgage. Muriel, experts say, was lucky. Most equity predators take the unaware for a lot more.

"Abusive practices are the exception, not the rule in this industry," said Jeffrey Zeltzer, executive director of the National Home Equity Mortgage Association, a trade association trying to push reforms for the industry. "However, NHEMA has recognized that there are a few unscrupulous mortgage brokers and lenders who are engaging in improper practices. We are firmly committed to forcing this rogue minority of bad apples to stop such improper practices."

Muriel is hardly alone. The American Association of Retired Persons announced in May that it is filing a legal motion to join a suit brought in 1995 by the San Jose law firm of Steinbock & Hofmann to stop alleged predatory mortgage practices, according to a report in the San Jose Mercury News.

The suit's 14 plaintiffs include older, retired couples, but the plaintiffs are primarily single women, 55 and older, the San Jose paper reported. The suit, according to the San Jose Mercury News, "alleges First Alliance Corp. of Irvine, Calif. misrepresented loan origination fees to be less than the actual amount, misrepresented as 'free' an initial no-payment period, misrepresented interest rates as low, without disclosing they were teaser adjustable rates that within years could swell beyond what the borrower could afford and beyond going market rates the borrowers could likely land." First Alliance has denied wrong-doing.

Equity predators know how much a home is worth and have devised numerous schemes to turn that equity into their money.

Some equity thieves approach when the homeowner is concerned about his or her investment -- when the owner is behind in his mortgage payments or the home needs expensive repairs. Others lure you in by promising to reduce debt through debt consolidation or refinancing, Zeltzer said.

Home improvement fraud is perhaps the most common equity scam. Debt consolidation is another popular scam to steal your equity.

"Either a mortgage broker or a lender will contact you and offer to pay off all your debts with a single mortgage loan," Zeltzer said. "Watch out, though, because this single loan is almost always more expensive over the long run than all your previous debts combined. Often the mortgage broker or lender pressures you to borrow more money than you really need to pay off existing debts because the more you borrow, the more they profit.

"You'll most likely wind up further in debt than you were to begin with, and if you default on the mortgage loan you could even lose your home," Zeltzer said.

Loan flipping is an especially devious scam that usually follows on the heels of one of the others. A short time after a homeowner takes out a mortgage loan, the lender might contact the homeowner and offer to refinance the loan, promising to make the terms more affordable, Zeltzer said.

However, the lender usually flips the victim into a new loan just as bad or even worse than the one before. Each time it is flipped the lender charges a new set of fees, increases the total debt and extends the period of indebtedness.

"You either lose your house to foreclosure or end up with payments so high you spend every cent of your income in a desperate struggle to hold onto your home," Zeltzer said.

Some of these practices violate federal credit laws dealing with disclosures about loan terms, discrimination based on age, gender, marital status, race, or national origin; and debt collection.

The home equity lending industry has grown over the last decade into a quarter-trillion dollar segment of the nation’s economy. In 1997, the industry originated more than four million home equity loans, totaling $268 billion, most of which consumers recirculated into the economy. The industry operates in all 50 states and employs tens of thousands.

Generally, home equity loan customers have some blemishes on their credit histories and do not meet strict "A" credit standards. As a result, these types of loans are classified as "A-," "B," "C" and sometimes "D" credit grade. Often, home equity loans are referred to as subprime or non-conforming loans.

The Atlanta Legal Aid Society has represented Atlanta's poor in civil legal cases since 1924, and has a particular set of warning for homeowners.