Protect Yourself Against Lending Fraud
FARAI CHIDEYA, host:
So for more on what you can do to protect yourself from predatory lending we're joined now by Keith Corbett, senior vice president at the Center for Responsible Lending, and Los Angeles-based foreclosure specialist Azeem Ali, with Pacific Coast Capital. Welcome to you both.
Mr. AZEEM ALI (Foreclosure Specialist, Pacific Coast Capital): Thank you.
Mr. KEITH CORBETT (Senior Vice President, Center for Responsible Lending): Thank you.
CHIDEYA: So, Azeem, let me start with you. When people hear foreclosure they usually think of the bad guys coming in to take the house. Listening to the Anderson's story, to Barbara's story, tell us what you and how common is it that you run across people like her?
Mr. ALI: What we do at Pacific Coast Capital is we basically get involved in advising individuals that have had loans that have defaulted and preventing them from going the full foreclosure route, which the end result of foreclosure is a total loss when you lose your home at auction. So we prevent that from happening and try to reestablish the homeowner into not only keeping their home, but also giving them a financial strategy to prevent the foreclosure from happening again.
CHIDEYA: And the kinds of things that Barbara was talking about, have you heard other similar stories?
Mr. ALI: Yes, yes. Unfortunately, it's very common. I mean, it's what I call irresponsibility on the part of the lender. And even more irresponsibility on the part of the broker who sets that the loan up. And the good thing about her story is she was proactive. And a lot of people what they do is they bury their head in the sand thinking hey, I've done the right thing so let them figure out.
And that's the wrong strategy, because it will go the full length of the foreclosure.
CHIDEYA: And, Keith, your origination recently produced a report on unfair lending, and specifically the impact on race and ethnicity. So what did you find out?
Mr. CORBETT: We found that when you have African-Americans with - or Latino borrowers with a same credit scores, same house, same neighborhood, same income then they are still likely to put be into a high risk loan and 30 percent more likely to receive a high rate loan then white borrowers.
If a broker puts you into a sub prime loan and you're A credit, they receive what is called the yield spread premium, which also synonymous to a kick back. The borrower never knows that they're put in that type of loan.
CHIDEYA: So you're talking about institutional racial discrimination. What can - I mean, if you're someone who's not a banker, and we heard Barbara say that there was even a banker at this meeting of people who where in danger with there houses. But if you're not a banker how are you supposed to spot the problems with any kind of loan?
Mr. CORBETT: Just like Azeem said, a lot of it goes back to the broker. The broker befriends the people, having them thinking that their working in their best interest when they're not working in their best interest. So it's extremely hard because paperwork is so daunting for some people. I had a case last week, closing documents are about 50 pages but on page 44, page 45, is where you saw the terms of the loan. Leading up to that it's just a lot of (unintelligible) sales and marketing kind of things.
CHIDEYA: Azeem, tell us about the strategies that you used with your clients who must be on the brink of what could be financial ruin. How do you, first of all, analyze what kind of situation they're in? And secondly, how do you give them a way to either keep their homes or at least get some money if their homes have to be sold?
Mr. ALI: That's a great question. What we do - the first thing we want to do is we want to take the face off the clock and see what's going on. Why did they get into foreclosure? Was it a cash flow problem or was it just a one-time situation, a funeral or a divorce or something that took them off track.
If it's a cash flow problem, obviously, we're going to try to instruct them on how to sell the house and get into a better situation, because if you don't have cash flow you can't keep the house. There's no way.
Now if it's a situation where they are just mismanaging their finances, which is most of the time the case, then what we do is we try to put them on some type of a financial diet and get them back on track.
One of the major things that we do regardless of the situation is we educate. Because with the power of education, if you understand what's going on and what put you in foreclosure, then you understand how to get out and you understand how to stay out.
CHIDEYA: A lot of our real estate series this week has focused on basically financial literacy, being someone who can really make good decisions, no matter whether that decision is to continue to rent, to buy for the first time, to buy a new home.
How financially literate, Azeem, do you think the people were who come into your office? Did they, for the most part, understand what they were getting into when they bought a home?
Mr. ALI: Absolutely not. And the funny about it is buying a home is the most expensive endeavor that you'll probably undertake in your lifetime. It's also the longest term of any type of debt responsibility. However, fewer people - if you ask the average person what their interest rate is, how that interest, you know, behaves, you know, if it's going to adjust, if there's a prepayment penalty, most people will not know.
CHIDEYA: Keith, let me turn to you. If this is sort of an institutional racial discrimination problem then who should come up with the solution? What kinds of larger solutions are there to this issue?
Mr. CORBETT: Legislation has to be the key. And we have had success in some states, but it's just a small percentage. Currently, Mel Watt, the chair of the Congressional Black Caucus, has a bill in Congress that would give us some protections; it would sort of revert back. But the industry is fighting that extremely hard.
You have to keep in mind that this industry has grown 10 times since 1999.
CHIDEYA: Finally, Azeem, if you had one piece of advice to give people who may find that their monthly payments are a little bit more than they expect and who may be getting close to the breaking point, what would it be? Not necessarily for someone who's already in foreclosure but for someone who's worried?
Mr. ALI: The best thing you can do is start the communication with your bank as soon as possible. There's a misnomer that people think the bank wants the property. They think that the bank wants to foreclose. Not true. The bank wants that loan to be serviced and they want to continue to make money on the interest.
If you get in contact with your bank early enough, there's several things that the bank would try to do to prevent the property from going into default and eventually foreclosure. So time is always, you know, of the essence. Get in contact as soon as possible. If it's a situation where you think it's going to continue for a long period of time, you want to potentially think about selling the property, as hard as that decision might be.
CHIDEYA: I guess it's better than having it taken away.
Mr. ALI: Right.
CHIDEYA: Azeem Ali is a Los Angeles-based foreclosure specialist with Pacific Coast Capital. Keith Corbett is senior vice president at the Center for Responsible Lending. Thank you both, gentlemen.
Mr. ALI: Thank you.
Mr. CORBETT: Thank you.
CHIDEYA: You can read a list of mortgage dos and don'ts at our Web site, plus catch other reports from our three-day series. Just go to npr.org.
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CHIDEYA: Coming up on our special Roundtable, how to buy your first home the smart way. We'll have valuable information from people who've made the leap next. Transcript provided by NPR, Copyright NPR.