Daily News (Bowling Green, KY)

Program eyes loan practices

RAED G. BATTAH, The Daily News, /783-3246

Published: October 15, 2005

A state-sponsored program aimed at protecting consumers from unscrupulous lenders will kick off Oct. 27 in Lexington. The "Don't Borrow Trouble Kentucky"; program combines public education with counseling to help consumers become more savvy about legitimate borrowing and credit/debt management.

The program seeks to eliminate predatory lending, where borrowers are charged exorbitant interest rates or fees, in 10 target areas in Kentucky, according to Don't Borrow Trouble Kentucky Task Force member Karri Sandino of the Kentucky Housing Corp., which is the housing finance agency for the state.

Mayor Elaine Walker, who recently announced Bowling Green's participation in the Mayor's National Dollarwise Campaign, wants local consumers to be mindful of risky loan firms and borrowing practices.

"There are low-, medium- and high-income people out there who have been affected by these lenders,"; Walker said. "It was fascinating how this tied into the Dollarwise campaign.";

The Housing and Community Development Department of Bowling Green is also a participating partner in the Dollarwise campaign.

Predatory lending can have huge consequences on people interested in becoming homeowners. Wayne Thompson, who represents the Mortgage Bankers Association of Kentucky on the task force, regularly sees clients who have been victims or are potential victims of predatory lending.

"I just talked to a lady in Franklin who was looking into a reverse mortgage,"; he explained.

Reverse mortgages are designed for seniors who are "house rich and cash poor,"; Thompson said. A homeowner is given a "loan"; based on the value of their home. The interest and payments they would normally pay is passed on to their estate.

Thompson said the 90-year-old woman told him she found somebody to give her a loan. A $15,000 loan would end up costing her estate about $23,000.

"(Predatory lending) can be a number of things,"; he said. "Nobody can define it, you just know it when you see it, such as when somebody's being charged ... excessive fees or rates. Or it can be the type of loan the lender puts them on. There are loan types that if you're a sophisticated, well to do individual that has the resources to handle it that's fine. But that's not the case for most people.";

The "Don't Borrow Trouble"; concept was pioneered by Boston Mayor Thomas M. Menino and the Massachusetts Community and Banking Council. The program was expanded to Kentucky with the help of home lending giant Freddie Mac.

Walker said the Don't Borrow Trouble Kentucky program has valuable points that relate to the local issue of homeownership. As a result of credit and debt problems accrued through the use of certain lenders, Walker said, many people can't get the funds they need to move into a home.

"We are working ... to help make consumers more aware of predatory lending practices so that before they sign anything they are more critical,"; she said.

Borrowers can learn about the dangers of predatory lending and become aware of other financial resources. The program also hopes to pair home buyers with special assistance programs. Credit building and management is also discussed and an emphasis is placed on smart home buying to avoid potential foreclosure.

The campaign kicks off with a presentation from representatives of Freddie Mac.

While predatory lenders may include check-advance businesses, auto title loan establishments and rent-to-own companies, Sandino said that's not the whole story.

"I would hesitate to limit it to just those groups,"; Sandino said. "... It could be someone walking down the street doing contracting, or a telephone solicitor or something in the mail.

"It's changing all the time,"; she added. "People are finding new ways to get into the back pocket of Kentuckians.";

Sandino said she hopes the target areas will spread.

"We'd like to make it a statewide initiative,"; she said. "It's the kind of thing that the more people that get involved and share their knowledge, the better reach it will have.";

Thompson said he hopes the Don't Borrow Trouble Kentucky put useful information in the hands of Kentucky consumers.

"What I'm hoping we can do is either take one of the brochures or design another one that we can hand out to customers when they apply. Of course, the good lenders will hand them out and the bad lenders won't. Every bit of education helps.";

"People have no clue because it's only something they may do four or five times in their life,"; he added. "They know to ask two questions, what's the rate and what's the closing costs. A lot of times there are far more important considerations than just rates and costs.";

He said lenders should give borrowers a "good faith"; estimate up front of the cost of the loan.

"If they don't give it to you up front, then there's a reason,"; he warned.

Thompson said lenders have an obligation to put a person on a program that's suitable to them, but said consumers should beware.

"There's really nothing that protects a consumer from a lender just gouging them,"; he said. "HOEPA (Homeowners Equity Protection Act) says you can't charge somebody eight points interest. But that's already too high. There are groups that think that in Kentucky we should pass a lower trigger, but we can't legislate ethics to lenders.";

Borrowers shouldn't hesitate to contact the Department of Financial Institutions in Frankfort at (800) 223-2579 to check if a lender is in good standing. Also check the Better Business Bureau. Consumers should only approach qualified lenders with proven track records and legitimate qualifications.

Copyright, 2005, News Publishing LLC (Bowling Green, KY)