Okay, I give. Uncle. Last week in this column I wrote about the differences between so-called High Cost loans and Sub-Prime loans. High Cost loans are those that are defined by various state and local governments along with other consumer groups as pretty much whatever they decide upon. Some Predatory (High Cost) loans can be either illegal or trigger an additional set of loan disclosures to the borrower because they cost too much in relation to the loan amount, or the interest rate on the loan itself reaches, or can possibly reach, a particular number.

Thanks for your cards and letters, folks.

Go ahead, flip back to the last article and you’ll read that I do not know, nor can various governmental agencies agree upon, the definition of a Predatory loan. Instead I simply said that I would just know a bad loan if I saw one, but didn’t attempt to say what was fair compensation to the lender. But let’s examine a little further how compensation to the lender can work.

Loan officers, be they employed by a lender who has stacks of money in their vaults earmarked for future borrowers or their boss is a mortgage broker who finds loans for mortgage companies, only get paid when your loan closes. Loan officers get paid on commission. No loan closed, no paycheck. Many Loan officers get paid a percentage of the revenue on each loan. Similar to how a real estate agent gets paid on a home sale.

If a real estate broker gets paid 6% in a normal transaction, then on a home sale of $100,000 that broker gets paid $6,000 upon closing. If that home costs $10,000 the commission drops to $600.

These hardy souls spend a lot of time upfront, before being paid anything whatsoever in hopes your deal closes. If it doesn’t, they’ve not only lost a commission check, they’ve lost time they could have spent working on deals that could have closed. So what does this have to do with Predatory lending?

Your lender wants to close your loan. There is no other reason for them to be in business, right? The differences begin as to who charges what. And as I mentioned last week, I don’t know what art is, but I know it when I see it. If you are a consumer and you’re getting charged 8 points for a loan, then shop elsewhere. If you’re getting quoted 5 points then shop elsewhere.

In my sometimes humble opinion, if you think you’re being taken advantage of and your lender or broker points represent more than 3% of the loan amount (not at your behest) then you need to pick up the phone and call around. Heck, you should call around anyway even if you think you have the best deal on the planet.

But again consider the motivation for your lender. If your loan amount is only $30,000 and your commissioned loan officer is charging 3 points then your loan officer will end up making about $400 on your loan. Does that sound like a lot? It’s really not if most loan officers only close three or four loans each month

Who are the victims of Predatory Lenders? Many times they can be those who’ve had negative credit, a bankruptcy or a foreclosure in their past that they believe keep them forever in a bad loan. Not so. Most any lender will make a loan if the negative credit can be shown to have been caused completely out of the borrowers control. Some loan programs work just fine if a bankruptcy is only 12 months old…or less. But sadly many potential borrowers think that because a bankruptcy or foreclosure appears on their credit report for ten years then their hopes for a decent mortgage rate are gone.

It’s these people that bad loan officers prey on. The consumers that are embarrassed, confused or harassed to shop around. If you’ve had negative credit in the past, do what any doctor would tell you….get a second opinion.

Know what else? I changed my mind. I ain’t cryin’ Uncle. Don’t put up with abusive lenders.

Published: September 17, 2002

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