Raising the Roof on Riskier Lending; 'Subprime' Mortgage Practices by Banks and Finance Firms Draw Federal, State Scrutiny
The mortgage broker called out of the blue a year ago, but Jaquetta Patrick liked what he was selling.</br></br>The 62-year-old retired secretary for the D.C. school system, who is legally blind, recalls that he said he could get her a much better deal than the $56,000, 15-year, 10.99 percent loan she had at the time. He said he could get her an interest rate under 7 percent and told her to stop paying her mortgage because he would take care of that until the new loan came through, according to court papers.</br></br>Several months and a confusing array of mortgage brokers later, the District resident ended up with a 30-year loan for $65,800 carrying a rate that varies from 11.49 percent to 18.49 percent. When she asked why the rate was so much higher than what she had been paying, she says, she was told it was because she had a bad credit record, brought on by her failure to pay her mortgage for the past three months--as the broker had instructed.</br></br>Patrick says she signed the papers for the new loan out of fear she would lose her house. "They have danced me around so much I don't even know who's who anymore," she said. "I'm devastated."</br></br>There's an uneasy revolution going in consumer finance--subprime lending. Over the past five years many banks have rushed headlong into this market, defined as extending credit to consumers whose troubled credit histories make them a higher risk. The lure, despite the higher risk, has been potentially higher profit margins than lending to top-notch, prime credits, said Thomas Abruzzo, bank analyst at FitchIBCA, a credit-rating agency headquartered in New York.