Federal bank regulators sent out a letter this week describing lending practices they consider to be predatory, warning that they expect lenders to “treat consumers fairly, adhere to all applicable legal requirements, and underwrite loan products appropriately.”

The Federal Deposit Insurance Corp.’s Jan. 22 “Supervisory Policy on Predatory Lending” describes characteristics of predatory lending, and reaffirms that such practices “are inconsistent with safe and sound lending and undermine individual, family and community economic well-being.”

According to the policy letter, predatory loans include at least one, and “perhaps all three,” of the following characteristics:

1: Making unaffordable loans based on the assets of the borrower rather than on the borrower’s ability to repay an obligation;
2: Inducing a borrower to refinance a loan repeatedly in order to charge high points and fees each time the loan is refinanced (”loan flipping”); or
3: Engaging in fraud or deception to conceal the true nature of the loan obligation, or ancillary products, from an unsuspecting or unsophisticated borrower.”

But the policy letter warns, “There is no simple checklist for determining whether a particular loan or loan program is predatory.”

Loan terms that are helpful to one borrower may be harmful to others, regulators said, and it is important to distinguish subprime lending from predatory lending. Subprime lending includes loans to persons who present heightened credit risk because they have experienced problems repaying credit in the past, or because they have only a limited credit history, the FDIC said. Loans that serve those borrowers “have a legitimate place in the market when they have been responsibly underwritten, priced and administered.”

Predatory lending, the letter said, is not limited to one class of borrowers. Signs of predatory lending include the lack of a fair exchange of value or loan pricing that reaches beyond the risk that a borrower represents or other customary standards.

The letter said the FDIC will continue to address predatory lending “through vigorous safety and soundness and compliance examinations and enforcement, industry outreach and adult financial education programs.”

This Week’s Real Estate Insight:

If a deal to buy, repair or refinance a house sounds too good to be true, it usually is! There are no predatory loans, it is the loan officer who is the predator, do yourself a favor and become as informed as possible about the mortgage process, in order to get the best deal possible, shop around for the best rates, and get referrals  from friends.

Towards a solid recovery towards the end of 2007. One sign is the demand for home loans swelled 16.6 percent during the week ended Jan. 5th according to the Mortgage Bankers Association. Requests for purchase loans were up 16.2 percent and refinancing applications rose 17.3 percent. The strong recovery compares with a 14 percent slide in application volume before Christmas and a small improvement of 3.6 percent just after the holiday. The higher demand for mortgages could signal an impending recovery— even though the MBA numbers were seasonally adjusted to account for the New Year’s Holiday.

This sentiment was echoed by a panel of experts at the RealEstate Connect Conference in New York last week; Unless employment erodes or the Federal Reserve Board boosts interest rates significantly, the housing market will revive in the second half of the year, “By the time we get to the mid-part of the year we’re going to see some pretty clear, consistent signs of recovery in home sales and single-family construction,” said panel member Frank Nothaft, chief economist at Freddie Mac. Economists agreed the factors for recovery are in place: Mortgage rates fell by more than half a point between July and December, job creation has grown, and home prices stabilized or fell.

For more info on Inman’s RealEstate Connect:

http://www.realestateconnect.com/ny07/

This Week’s Real Estate Insight:

Don’t get caught up in timing the market, if it makes sense for you to buy now, then buy. Ten years ago, a friend of mine bought a condo at the (then) height of the market, and paid $200,000 for a modest 2 bedroom unit, within a month, comparable units in her complex were selling for 20% less than what she had paid. Last week, she put her unit under agreement for $420,000, and has rolled her equity into her new dream home.