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Group Warns of Subprime Loan Lures

October 18, 1998

ATLANTA (AP) _ Say you’re still dreaming of owning your own home. Or your credit-card debts are in five digits and growing faster than you can keep up with.

Then a friendly voice on the telephone offers you a quick way out. Or you open your mail to find what appears to be a check for $40,000 _ made out to you.

Borrower beware, warns a civil rights leader who’s helping put on a conference in Atlanta this week to promote ways of protecting consumers from being drawn into bad loan deals.

``You’re finding people who are financially hard-pressed or stressed and may be unsophisticated and see this access to substantial monies as being too attractive to ignore. This often leads them into bad judgments,″ said Wade Henderson, executive director of the Leadership Conference on Civil Rights.

His group and two other Washington-based organizations, the National Association of Neighborhoods and the National Fair Housing Alliance, have formed the Consumer Mortgage Education Consortium.

At the conference Thursday and Friday, officials from the consortium, the federal government and lending agencies will discuss the subprime lending market, which is estimated at $200 billion and has been growing by as much as 50 percent a year.

With major commercial banks tightening consumer credit standards for prime loans in the past few years, the subprime business _ offering mortgages or refinancing at as much as double the prime rate or with high added-on fees _ has become the only option for some.

``We just always tell consumers it’s very important to shop around and compare,″ said Patricia Boerger, a spokeswoman for the American Bankers Association. ``On the other hand, if you are a high credit risk and have a bad record, that’s why subprime is around.″

Henderson said the subprime lenders fill a role in offering a second chance or even a first chance to many borrowers. But as the industry has grown, so has the rise in unethical opportunists who take advantage of people ready to jump at the first offer of a loan, he said.

He said his group is still trying to put together estimates of how many people are being victimized by too-high loans or hidden fees that have caused them to lose their homes or other property.

But he said his group is seeing signs that the numbers are rising among minorities, the elderly, single women who are heads of households and new immigrants.

``These new immigrants are trying hard to conform to American ideals and values. They want a piece of that American dream; they want to own their own home,″ said Henderson. ``Without more information, they don’t safeguard their assets, using them as collateral for a loan they have no chance of paying back.″

Juanita Wilson, a 66-year-old widow in Los Angeles, said she was taken advantage of repeatedly as she took out loans on three houses she owns _ one her own, another a rooming house and another a home for the elderly.

``I guess I didn’t understand. None of this stuff they tell you is true,″ she said.

The loans have variable rates that have risen to as much as 14 percent, making it difficult to keep up with her monthly payments.

``It’s a mess,″ she said, adding that she battles to keep up because the 38 people who live in her houses ``would have no place to live″ otherwise.

Henderson said the conference will seek to come up with voluntary guidelines on fair lending practices and education efforts to help borrowers understand the full costs and risks of subprime loans.

Mrs. Wilson’s advice for borrowers: ``Converse with some knowledgeable person who would guide them along and help them not make mistakes like I did.″

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