Consumers Union is launching a two-year public education campaign to inform home owners about dangerous and sometimes fraudulent practices in the home equity lending business. The West Coast Regional Office of Consumers Union, the nonprofit publisher of Consumer Reports, has produced two brochures on home equity fraud and reverse mortgages, both in English and Spanish. Additionally, the organization is scheduling seminars around the Bay Area to educate potential victims of home equity abuse in order to help home owners avoid scams that can leave them literally homeless.

"Home equity lending is already big business, and it's growing as real estate prices rise dramatically in the Bay Area," says Norma Garcia, staff attorney with Consumers Union. "While some loans can help consumers, others only lead to dangerous debt and foreclosure for the 'cash-poor, equity-rich.' We want to help home owners understand the difference between a good loan and a dangerous one, and give them the information to protect themselves and their homes."

The first brochure, "Don't Lose Your Home Like I Did: Home Equity Fraud," helps home owners assess whether a home equity loan is fair and appropriate for their needs, and also highlights danger signs that let borrowers know when they may be getting in over their heads. In addition, the brochure offers resource information about free and confidential counseling, law enforcement and state regulatory agencies. The second brochure, "Guarding the Golden Years: Reverse Mortgages," discusses the pros and cons of these popular, complex home loans for seniors.

Along with distributing these brochures, Consumers Union is partnering with Bay Area organizations to coordinate education seminars for targeted seniors.

"Home equity fraud and predatory practices are easy to avoid if you know how," Garcia said. "Our goal is to reach targeted home owners before unscrupulous lenders knock on their doors."

In 1995, Consumers Union released a report on home equity fraud, highlighting questionable practices by high-pressure home improvement sales people, foreclosure "rescue" services, and unscrupulous lenders that seem to target elderly, low-income, single/widowed, and minority home owners. The report outlined scams that coax individuals with high equity into loans with exorbitant interest rates and high points and origination fees, regardless of the borrower's ability to repay the loan. Consumers Union issued a number of legislative and regulatory recommendations to help protect consumers. The new education campaign supplements the organization's continuing policy work by providing direct assistance to potential victims.

In preparing the brochures and curricula for the seminars, Consumers Union conducted a focus group of senior home owners to assess knowledge of home equity lending practices. Many of the home owners expressed a general knowledge of home equity fraud and the potential for abuse. However, most focus group participants were unfamiliar with local home improvement lending programs and other resources they might use instead of dangerous loans.

Additionally, focus group participants expressed frustration that some dangerous lending practices are completely legal, giving seniors no recourse if they enter into such agreements.

"Loans with large balloon payments, high interest rates, and high points and fees may be lousy, but they aren't necessarily illegal,'' Garcia says. "We need seniors to recognize both outright fraud and really bad deals."

For a brochure, or to learn about or schedule an education seminar, contact Norma Garcia at Consumers Union at (415) 431-6747.

Published: May 13, 1998

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