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Realtor Officials Warn Consumers Not to Fall Prey to Predatory Lenders

Wednesday, November 29, 2006

The National Association of Realtors® (NAR) is warning consumers not to fall prey to predatory lenders. In partnership with the Center for Responsible Lending, NAR  has recently introduced a new brochure entitled, "How to Avoid Predatory Lending."

The increased availability of financing alternatives has helped many consumers become homeowners in recent years, but some of these owners will invariably lose their homes because they were the victims of predatory lending practices. The brochure aims to help consumers understand these practices and avoid unscrupulous lenders.

"Responsible lenders play a vital role in helping people achieve their dream of homeownership, but that dream can turn into a nightmare when buyers are locked into a mortgage they have no hope of paying off," said Thomas M. Stevens, NAR president.

Nearly all predatory lending occurs in the subprime market, and it can happen to people who are buying a home as well as to those who are refinancing their home. This market serves people with less than an ideal credit score, often due to short work histories, high debt, or late payment records.

According to a recent survey undertaken by the Harvard University's Joint Center for Housing Studies, more than one in every 10 mortgage holders in today's market are subprime borrowers. Subprime loans have helped millions of consumers become homeowners, but some lenders abuse their role and take advantage of vulnerable borrowers, Stevens said.

"How to Avoid Predatory Lending" describes some characteristics and warning signs of predatory loans. They include:

* High interest rates and fees, beyond what would be considered fair based on the buyer's credit history.

* Bait and switch tactics, in which unsuspecting buyers are offered an attractive loan, only to encounter higher interest rates and fees at the closing table.

* High prepayment penalties that make it hard or impossible for a borrower to refinance to a lower cost loan.

* Inflated appraisals that help lenders hide excessive loan fees and result in the buyer owing more to the bank than his or her home is worth.

The brochure also shows ways that consumers, in tandem with a Realtor, can protect themselves when shopping for a loan:

* Know your credit score, and ask for a copy of your credit report.

* Educate yourself about the lowest interest rates available, and ask the lender if you qualify for those rates.

* Learn everything you can about the loans offered, including terms, fees, monthly payments over time, prepayment penalties, and whether the loan is an adjustable- rate mortgage or a fixed-rate loan.

* Investigate the lender's reputation.

With the explosion of mortgage products and loan options available today, consumers must educate themselves about their choices, and Realtors are a valuable consumer resource, said Stevens.

According to John Tripp, 2006 president of the Silicon Valley Association of Realtors® (SILVAR), it is important that a homebuyer work with a real estate professional who is knowledgeable and abides by ethical standards.

"A knowledgeable REALTOR® is a necessary ingredient in a successful transaction," said Tripp. He also noted, "Not all real estate agents are Realtors."

The term "REALTOR®" is a registered collective membership mark which identifies a real estate professional who is a member of the National Association of Realtors® (NAR) and who subscribes to its strict Code of Ethics.

Realtors help home buyers make what is often the biggest investment of their lives, but they also help their clients protect that investment. As the first point of contact in the real estate transaction, Realtors can help their clients identify and avoid predatory lenders, according to Tripp.

Affiliate members of SILVAR include individuals who are involved in real estate transactions. They are attorneys, title insurers, lending institution officers, builders, surveyors and contractors. They represent businesses like mortgage companies, home inspectors, newspapers, title companies and pest control companies. They are valued and can be trusted for the same reasons Realtors are valued and trusted, according to the Realtor association's affiliate chair, Mindi Oie of Countywide Home Loans.

"The Code of Ethics ties SILVAR Realtors and affiliates. We are able to abide by a Code of Ethics based on what the association has in place," Oie stated. "It brings value-added importance to our professions."

For a list of Realtors and affiliates by location, visit www.silvar.org. A copy of "How to Avoid Predatory Lending" may also be obtained by contacting a Realtor.


The Silicon Valley Association of REALTORS® (SILVAR) is a professional trade organization representing over 4,000 REALTORS® and Affiliate members engaged in the real estate business on the Peninsula and in the South Bay. SILVAR promotes the highest ethical standards of real estate practice, serves as an advocate for homeownership and homeowners, and represents the interests of property owners in Silicon Valley.

The term "REALTOR®" is a registered collective membership mark which identifies a real estate professional who is a member of the National Association of REALTORS® and who subscribes to its strict Code of Ethics.

Variations of this article have appeared in local area newspapers.

For further information, please contact Rose Meily at SILVAR Public Affairs, email , or phone (408) 200-0109.

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