Predatory lending as we know it today first became widespread in the 1990’s. Many factors, in the lending market as well as the American culture in general, made the times ripe for predatory lending:

Consumer Credit Culture. We live in a world of immediacy—instant messaging, instant access, instant purchase power. American culture no longer values saving for a purchase until it can be paid for in cash. The ‘buy now, pay later’ philosophy is at the heart of the predatory lending crisis. Some homeowners who face credit card debt opt to take the easy way out rather than taking steps to reduce their spending and work to pay off the debt. Instead they gravitate to the “No Credit, Bad Credit?” ads, bringing themselves to the doors of the predatory lenders.

Record-Low Interest Rates. These record-low interest rates have allowed sub-prime lenders to make their products attractive to many borrowers who may have previously found themselves outside the traditional lending circles.

Sub-Prime Industry Growth Boom. Between 2002 and 2004, sub-prime originations more than doubled from $213 billion in 2002 to $530 million in 2004. The increased volume of loans increased the opportunities for predatory lending.

Increasing Home Values. Home values in many markets have been steadily increasing, allowing homeowners to rapidly build equity. This has created a fertile market for the predatory lender.

Advent of Home Equity Loans. Home equity loans have made it easier for homeowners to tap into their equity for a variety of purposes.

Consumer Demand for Home Improvement Loans. America’s housing stock is aging and needs repairs. The predatory lender will always be where the need is the greatest. They have teamed up with unscrupulous contractors to identify vulnerable homeowners, often elderly people.

Record-High Homeownership Rates. We have the highest homeownership rates ever. More people than ever wish to become homeowners. The predatory lender reaches out with a yes when a reputable lender advises waiting.

Lack of Access to Regulated Capital. Many consumers do not have bank accounts because they distrust mainstream banks. The predators know this and market themselves as people to be trusted.

Unsure Consumers. Many consumers believe that home financing is too complex for them to ever understand. These consumers are afraid to ask questions. They appreciate the predatory lenders who don’t make them feel dumb or intimidated.

Lack of Regulation. Unlike its prime cousin, the sub-prime lending industry is only marginally monitored and regulated, leaving room for the proliferation of questionable practices.

Unscrupulous Lenders & Brokers. Mortgage brokers and third-party originators accounted for 72.4 percent of sub-prime originations in 2004, up from two-thirds in 2003. The increasing distance between the lender and the consumer increases opportunities for predatory lending to occur.

 

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