Question

What is meant by “predatory lending”? Why are the victims of this kind of lending often poorer people? How did predatory lending contribute to the subprime mortgage boom of the 2000s and the Financial Crisis of 2007-8? What steps can be taken to prevent predatory lending?

Answer 1

Predatory lending is any lending practice that imposes unfair or abusive loan terms on a borrower. It is also any practice that convinces a borrower to accept unfair terms through deceptive, coercive, exploitative or unscrupulous actions for a loan that a borrower doesn't need, doesn't want or can not afford. It includes any unscrupulous actions carried out by a lender to entice, induce and assist a borrower in taking a loan that carries high fees, a high-interest rate, strips the borrower of equity, for example a predatory lender may insert credit insurance on auto or personal loans, or try to add high service fees for a mortgage loan. Often, the lender will insist the charges be included in the loan, on a take it or leave it basis.

Poor people often become the victim s of this kind of predatory lending because they do not have resources to pay the installments in due time.they have less resources as compared to riches. They have the same basic needs of life which have others,they hardly cab fullfill their basic need they are compel to take loans from banks and became victams.

The poor people were compel for thir shelters for this purpose they get loans for building their homes. As we know the poor are always needy the do not fullfill their needs on their daily low income,they only want to eradicate the appetite, and to wear basic and urgent and suitable clothes.in 2002 when poors apply for their housing loans .The proximate causes were the rise in subprime lending and the increase in housing speculation. The percentage of lower-quality subprime mortgages originated during a given year rose significantly from around 20% in 2000 to around 35% in 2007-2008. Investors even those with prime credit ratings, were much more likely to default than non-investors when prices fell.the global financial crisis of 2007 & 2008 have these reasons: Investment companies borrowed money from banks to buy subprime loans, banks were indirect investors in subprime loans and banks had to reduce their reserves as they wrote off bad loans.

Predatory lending can be prevented:Predatory and abusive lending is often characterized by the use of personal characteristics unrelated to creditworthiness in targeting borrowers as clients, loan terms that are inappropriate or unjustifiable, and fraudulent lending behavior in order to maximize the benefit of the mortgage to the lender at the cost of the borrower. The particulars of what constitutes predatory are commonly discussed and often disagreed upon, but include specific loan terms such as negative amortization, inflated interest rates, prepayment penalties, and excessive fees.we can avoid predatory lending as: Encouraging a borrower to frequently refinance in order to charge excessive fees and points, to the borrower's financial disadvantage, loan flipping. Lending  based on the borrower's assets rather than the ability to repay. Deceptive or fraudulent marketing tactics or representations.