SPEECH—GIVEN OCT 26 AT AARP CONSUMER COLLEGE
(15 MINUTES)

Good morning everyone and thank you to the Office on Aging and to AARP for this opportunity to expose the many scams and schemes that impoverish and defraud older people. Our audience may leave here today feeling disillusioned and even a little scared, but when you walk out the door, hopefully you will be armed with knowledge to protect yourself.

I'm going to address the very serious and rapidly growing phenomenon of predatory home loans. Loans that rob owners of the equity they've built up over the years, and sometimes even rob them of their homes. In the last two years, the Housing Info Line has received an escalating number of complaints about high-cost mortgage loans made by finance companies, loan brokers and unscrupulous subprime lenders. And it's no wonder! The number of lenders licensed in Tennessee grew from only 220, in 1990, to over 1,200 today. That's a 500% increase in companies who are competing to refinance your mortgage, or to talk you into a new loan on the house that you own free and clear.

The victims who call us represent only the tiny tip of the iceberg; there are thousands more Chattanoogans on fixed incomes silently struggling to keep up their payments on unaffordable loans that should never have been made.

If you are a member of AARP—as I am—you receive their magazine The Bulletin—that just this month featured an article on predatory home loans. I believe we have some copies for you. Please read it and warn your friends and families. Spread the word through your neighborhood association or church. Older people are certainly not the only victims of predatory lenders.

The word "predatory" is universally used now to describe lenders who engage in a wide variety of practices that are disadvantageous to the borrower, and unduly profitable to the lender. These practices include blatant lies, aggressive sales tactics, high fees and interest rates, balloon payments that force people into a vicious cycle of refinancing, unnecessary charges for credit life insurance, abusive collection tactics, and penalties that make these bad loans virtually inescapable. The reason that crooked finance companies, brokers and subprime lenders particularly target older people is because they have been paying on their home for many years and have built up "equity". Equity is that portion of the home's value that you, not the bank, own. This equity can be borrowed against, and all too often exploitative lenders base loans on the equity . . . not the borrowers ability to repay. That's why I hear from so many people whose payments are delinquent or who are facing foreclosure.

Predatory lenders strip the equity out of our homes by marketing to older people . . . through the mail, over the phone, on the TV, and even by knocking on your door. "If you refinance your existing loan with us right now", they say, "we will lower your payments, consolidate your high-interest credit card debt, and even give you extra cash! Besides there are no closing costs and no up-front fees!"

They make the deal sound so good that the homeowner thinks, "Well, I'd be a fool not to do this! Besides this fellow understands my problems better than my own kids! We really click and he's making me the best deal because he likes me! Lord knows I need some extra cash right now, and Heaven may have sent me this nice person to help me! Why he's even offered to drive me down to the office to sign the papers! Hummmmmm....and he's right about not getting my family involved in my business.. After all, I've always managed my own affairs....

Sitting here today, you may think that you would never be vulnerable to these psychological ploys, but these loan sellers are slicker'n you-know-what, and they are experts in finding your weak spots. Recently a man called to report that his dad was talked into a big loan—that he didn't even need—by a pretty lady who knocked on his door waving ten new one-hundred dollar bills under his nose, saying he could have the $1,000 just by refinancing with her wonderful finance company out on Lee Highway. The gentleman was in his 70's and not as sharp as he used to be. He had just a small balance left on his East Brainerd home. Unwittingly, he signed the papers that the lady with pretty legs presented him, trading in his good old 7% interest loan for a new one at 12%, with fees of $3,000 that went straight into the finance company's pocket. Thankfully a few months later his son discovered the foreclosure notice in his dad's pile of unpaid bills. He quickly caught up on the payments to save the house. Many of the big finance companies have well-known names that you recognize...The Associates, First Financial, CitiFinancial Household Financial, etc. Folks, anybody would have to be crazy to get a home loan at any finance company! One of the biggest ones - Household Financial - is fighting a huge class action suit brought by AARP just this month on behalf of New York borrowers. This precedent-setting action accuses Household Financial of "systematically and continuously targeting low income, minority, and older home owners, and inducing them into illegal exorbitantly priced loans." We will follow this important case closely and thank AARP for their initiative.

A Red Bank widow called me a few months ago after she realized she'd made a terrible mistake. When she decided to borrow against her home for her husband's funeral expenses and to help out her daughter, she went back to the friendly finance company that had in the past lent her money to buy a car. This woman with perfect credit made a 25 thousand dollar home loan at First Financial at 13% interest. Little did she realize that if she had comparison-shopped she could have borrowed the money at 5 1/2% at a bank! Her payment would have been $112 less every month! Here's the real shocker though: at 13%, the woman will pay the finance company $57,000 over the 15 year term. Whereas, with a 5 1/2 % bank loan, she would have paid back only $36,000. She will have to pay the finance company $21,000 more thank she would have paid the bank! HUD and the Treasury Department estimate that about 40% of people trapped in high cost loans could have qualified for a conventional low cost loan at a bank or mortgage company, or credit union.

If there's anything Id like you to remember today, my friends, it's N—O—NO! One little word, 2 little letters . . . Whenever a lender approaches you—whether through the TV, mail, phone, or personal visit, just say no immediately. Don't even let the conversation get started. They will tell you 10 lies in the first minute just to get you hooked and listening to them. They know their verbal promises can't be proved later. They tell you they will lower your payments—but what they don't say is that your escrows—your taxes and homeowners insurance will no longer be paid by the lender. I had a call the other day from an elderly Highland Park couple who were horrified when an $800 property tax bill arrived and took them by complete surprise. These trusting people who had worked hard all their lives were talked into refinancing several times and now they are trapped in a loan for $74,000 on a house that is worth only $50,000. What will they have to leave their kids? A whopping debt.

One good thing to remember is that if you sign any loan, which uses real estate as collateral, Federal law gives you 72 hours to cancel it. This is called the 3-day Right of Rescission. Predatory lenders right here in Chattanooga have told people that they don't have this right to cancel—and they are lying.

When people call the Info Line, usually they are embarrassed that they made a bad-financing decision without understanding the terms, checking out the lender, or comparison-shopping. Many times they were in a hurry or even desperate when they made their loan. Sadly, they often owe more than the house is worth, because the lender has based the loan on a false inflated appraisal. Often too, the monthly payment eats up 50% or more of the homeowner's income, and is clearly unaffordable over the long haul. People in this unfortunate situation are reluctant to disclose it to their families.

Frequently victims have unknowingly signed a loan with a balloon payment—where the entire balance is due in 2 to 5 years. This is a common trick to rope people into a cycle of expensive refinancing. Typically they pay 10 to 12% of the loan amount in points and fees each time they refinance. These high hidden fees feel painless at the time because the borrower doesn't have to hand over any cash from their pocket. But his loan balance goes up and up and up, his equity is gone, his personal security is gone, his peace of mind is gone . . . he's been had. Unfortunately, the state of TN has few consumer protections and it's almost impossible to find legal ways out of the loan unless one can prove fraud such as an inflated appraisal.

Let's face it. The normal person can't understand mortgage terms—even if they carefully read the fine print. The legal and financial jargon is just too obscure. So many borrowers depend on the lender to tell them what the loan papers say. I heard a case where the lender told the victim that the interest rate was 7% and she signed the papers. Afterwards she found out it was 17%! The woman had poor eyesight and was way too trusting! And if that case wasn't horrific enough, we even had a report of lenders going into a nursing home and convincing an incompetent woman to take a $20,000 loan on the Orchard Knob home that she still owned.

Just because a loan salesman is friendly to you, you don't have to be nice back! Overcome your good breeding and good manners! Hang up. Close the door. This is particularly necessary when home repair people come to your door and say they are working in your neighborhood and have a special deal today on roof repairs, window replacement, siding, driveway repairs, etc. These guys say "well, I'm doing some work for the lady down the street and noticed your chimney is beginning to crumble and could cause your house to burn down. I hate to see a nice person like you living in a dangerous house and since I'm in the neighborhood anyway, I'm going to do you a special favor and fix it for free. Well, the materials will cost you a little and if you don't have the cash, I can fix that too. I'll bring you the papers for a little loan and we'll get you fixed up right away."

This so-called repairman is in cahoots with a finance company and wants you to sign a lien on your house—though he doesn't tell you that—he lets you believe it's a personal loan. Too often you pay the guy but the work is never even started, or its shoddy, or its unfinished, or other problems are found that add significant costs. These door-to-door scammers are often out-of-towners and their "companies" are untraceable. Yet you must pay back the loan or bring an expensive lawsuit. With home repair people, use the same rule that you do with lenders—never say yes to a salesperson who comes to you.

Now—I don't want to give you the wrong idea—there are perfectly good reasons to refinance your home—especially now that the interest rate is the lowest in 40 years and there are good lenders to help you. Certainly your bank can be trusted, local established mortgage companies, credit unions, and non-profit or government lenders. Refinancing actually makes a lot of sense when you can get a lower interest rate. Also, using the value of your home to generate needed cash for home repairs is a good idea. If you own your home free and clear and need more money to live each month, consider a Reverse Mortgage where the bank slowly buys back your home making a cash payment to you each month and paying the balance to your heirs when you die. There are good and bad Reverse Mortgages so get advice! If you are thinking of making a home loan, call the Housing Information Line for an easy method of comparison shopping and finding the best, lowest-cost loan. We will send you a list of refinancing dos and don'ts and a list of predatory practices to watch out for. If your credit is poor and you absolutely must borrow from a sub prime lender, we will counsel you on finding a loan whose costs are commensurate with the lender's risk.

To sum up, here are points to remember:

• You find your lender and repair people; don't let them find you
• Get advice and recommendations
• Don't act in haste
• Shop around for your money
• Don't be fooled by fast talking b.s.ers no matter how friendly they are!
• Smiles and lies often come together