In February, 2007, Pat V. Combs, president of the National Association of Realtors testified before the U.S. Senate Committee on Banking, Housing and Urban Affairs that abusive and predatory lending practices put communities at risk by causing families to lose their homes and savings through higher foreclosure rates which deflate surrounding home values as well.

This was a full month before the subprime meltdown when over 20 lenders went belly up.

"Real estate professionals have a strong stake in preventing predatory lending," said Combs, "We have to make sure that while addressing predatory lending, the legislative and regulatory responses to lending abuses do not go too far and inadvertently limit the availability of reasonable credit for prime as well as subprime borrowers."

To that end, the NAR has made available a brochure, produced jointly by the Center for Responsible Lending, that identifies the warning signs of predatory loans. Not all subprime loans are predatory, but some loans are higher risk than others, particularly those that may be unaffordable in the future compared to fixed rate and adjustable rate loans. Some, warns the NAR, can increase in monthly payments by as much as 50 percent when introductory or teaser rates end, or they can cause loan balances to get larger rather than smaller every month.

Writes Ken Harney, for Realty Times, "Subprime mortgage originations now account for 20 percent of all new loans, up from a tiny sliver a decade ago. Roughly 45 percent of all subprime borrowers use their loans to buy a home, according to Michael Fratantoni, an economist with the Mortgage Bankers Association, and 25 percent of those purchasers are buying their first home."

Alan Greenspan, former chairman of the Federal Reserve, was quoted saying that as much as 10 percent of loan originations could be impacted by subprime woes, brought on by an increasing number of borrowers who are delinquent or in default.

The NAR identifies these loans as:

• Interest-only -- Loan payments cover only the interest and no principal reduction for a set period (five or 10 years) and when the loan resets, you pay both the principal and interest over the remaining term, 25 or 20 years.

• Negative Amortization -- Loan payments are less than the interest owed on the loan for the month, with the unpaid interest added to the loan's principal amount, causing the amount owed to increase monthly.

• Option Payment ARM -- For borrowers with fluctuating incomes, they have the option to pay either the interest-only, a negative amortization amount, or a larger payment to pay off the loan in a shorter or longer period than the term of the loan

• 40-year -- The benchmark fixed rate loan is 30 years. A 40-year mortgage reduces the monthly payment, but with 10 years additional interest and slower pay down on the balance.

These specialty loans, suggests NAR, are best suited to borrowers who plan to be in their homes only a short time, or who can handle higher payments in the future. For others who may be buying a more expensive home than they otherwise could qualify for, who aren't prepared for the inevitable period when the loan resets, payment shocks can be devastating.

With home prices currently nearly flat across much of the country, specialty loans are a poor choice for many borrowers, especially with mortgage rates drifting downward. If home appreciation doesn't occur, they can't sell their homes for enough to cover transaction costs, in some cases.

Published: April 5, 2007

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Blanche is a renowned author of five real estate books. Her newest, Bubbles, Booms and Busts: Make Money In Any Real Estate Market, McGraw-Hill, was rave-reviewed by The New York Times. She was also selected from hundreds of real estate experts to contribute to Donald Trump's book, Trump: The Best Real Estate Advice I Ever Received: 100 Top Experts Share Their Strategies, Rutledge Hill Press, and is featured on page 68. Order Now Review - Honors In 2006, Blanche was selected among scores of candidates to author two consumer real estate guidebooks for the National Association of Realtors: The NAR Guide to Home Buying, and The NAR Guide to Home Selling, Wiley & Sons. She is currently planning two new books for the NAR and its members.       Known for her keen insight into real estate industry issues and for her ability to make complex subjects easy to understand, Blanche is a sought-after keynote and continuing education speaker. Real estate organizations from MLSs, to brokerages, to franchisors, to associations hire her to provide up-to-the-minute analysis of real estate industry news and advice on how to improve revenues. Her passionate delivery, peppered with stinging wit, is a huge hit with audiences and fans. Don Klein, CEO Greater Nashville Association of Realtors, Blanche Evans, Richard Courtney, president 2007, GRAR "The GNAR membership meeting last week featured Blanche Evans as the keynote speaker. Her comments and insights resonated extremely well with those in attendance and we have had many requests for copies of her PowerPoint Presentation. She was a terrific part of the membership meeting and convention program!" - Don Klein, CEO Greater Nashville Association of Realtors Coverage from WSMV, Nashville - 8-14-2007 That Interview Guy - Get Inside The Head Of Today's Generation 2007 AE Institute Session - To purchase 2006 AE Institute Session - Parts 1 2 3 4 5 6 7 8 9 HouseValues Mastermind call - Parts 1 2 Blanche's fireside chat with Jeremy Conaway, HAR - Click here. For more articles by Blanche, click here.