It's not the loan that's predatory -- it's the loan officer. When the press gets its teeth in something often times it's too busy shaking its head to really understand what's going on. States are all trying to define "predatory" and there's federal rumblings as well. But what is misunderstood is that the loan itself is not predatory.

Lenders have better things to do than design a zero money down loan at a 1 percent start rate and balloon payment in month 13 to someone who can't afford the payments. Interest Only ARMs and Payment Option ARMs have all been the whipping boy as of late, and it's because those mean old lenders just can't wait to foreclose on the Waltons.

Such loan programs can offer the borrower a below-market rate that can change into a higher one later down the road. But of course, so can any ARM or any Hybrid mortgage. But foreclosure isn't the reason lenders invent loans. Lenders who plan in advance to foreclose won't be lenders very long. They'll be bankrupt.

Think about that for as second, what lender in their right mind would issue a mortgage loan with full intentions of foreclosing on the property? With zero money down? I'll tell you the answer is zero.

Do you think I'm wrong? Okay, name one. Go ahead. I'll bet you can't other than to tell me that "yeah, but they're out there David. I read about them in the papers every single day!" Okay, but who are they?

Before you start shaking your finger at me telling me about the evils of Payment Option ARMs, I'll first warn you that I was one of the first anywhere to point out the perils of such loan programs right here in this very column over a year ago, before anyone really knew they existed.

Have lenders issued mortgage loans that maybe they shouldn't have? I'm not going to deny that. Underwriters can sometimes be encouraged to let a certain guideline slide with evidence of certain "compensating factors" that might allow an underwriter to approve a loan he really shouldn't. All for the sake of originating a mortgage.

Have lenders been busted for shoddy loan practices, pushing consumers into new loans they shouldn't be taking? Yep, those stories have made the papers.

But it's not the loan. It's the loan officer.

It's the loan officer who can take a perfectly good loan product, squeeze someone into it and charge 5 points. Many of these loan officers are darned good salespeople. Heck, they take classes on how to convince people into taking loans.

A loan officer can scour loan files from last year, call up the borrower and suggest they take a cash out loan to pay off credit cards. Some loan officers can look at old loan files and see the borrower has kids almost college-age. "Hey Mr. Borrower, thinking about college? How about some cash out of your home equity?"

Perhaps the easiest target is someone who is desperately needing help. They've been out of work for a while, or a divorce or some other life-changing experience has fallen upon them. They read some SPAM ad somewhere encouraging them to refinance now to lower payments with an ARM and save their house.

"I can save you from foreclosure and you can roll all your closing costs into the loan," the loan officer tells them.

The loan officer encourages such a borrower to take out the loan to make lots of money. The loan officer doesn't care about those clients one or two years from now. They've already made their money and are moving on to their next victim.

These victims are taking loans that aren't predatory until the loan officer gets hold of them. One Payment Option ARM for one client might be a great vehicle for a homeowner to manage their equity in their house, use funds for investments or occasional principal paydown and not be predatory.

But that very same loan can be predatory when a bad apple loan officer takes it and shoves someone into it that has absolutely no business taking such a high risk mortgage. I've even seen standard conventional 30 year fare turned predatory by a loan officer who was making nearly 5 points on a deal simply because he thought he could get away with it.

Is there a predatory loan problem? Yes, but I've never seen a predatory loan. I haven't. But I have seen predatory loan officers. Find these loan officers and their bosses who oversee them and the predatory loan problem will magically disappear. I promise.

Published: April 28, 2006

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, a veteran Mortgage Banker, successful Real Estate Consultant and author of Your Guide to VA Loans, Mortgages 101: Quick Answers to Over 250 Critical Questions About Your Home Loan, Who Says You Can't Buy a Home!, and Mortgage Confidential: What You Need to Know That Your Lender Won't Tell You, is a former columnist and Contributing Editor with San Diego-based Mortgage Originator Magazine. Reed is President of CD Reed Mortgage Bankers, Austin, TX and is a Past President of the Austin Mortgage Bankers Association.