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WASHINGTON -- Consumers Union, the non-profit publisher of Consumer Reports magazine, Friday applauded moves by the Federal Trade Commission and the Department of Justice to probe predatory lending practices in the home equity and subprime mortgage markets.
"This investigation is the right thing to do, and we applaud FTC Chairman Robert Pitofsky for putting his agency on the front lines for consumers fighting fraud, "said Frank Torres, legislative counsel at Consumers Union. "Scam artists who prey on people with poor credit histories should be brought to justice."
At issue are allegations of consumer fraud, deceptive lending and unfair debt collection practices at both Ford Motor company's majority owned Associates First Capital Corp. and Capital City Mortgage Corp., as well as other companies across the country The FTC filed suit against Capital City for deceptive practices that have forced over 100 homeowners into foreclosure. "The high cost of these loans is bad enough. The added insult is that these loans often cost consumers their homes," added Torres.
In October of 1995, the West Coast Regional Office of CU published a hallmark study of predatory lending practices of the sort now under examination by federal authorities. The report, Dirty Deeds: Abuses and Fraudulent Practices in California's Home Equity Market, detailed various scams by looking at case studies related to situations that included home improvement needs, disaster related assistance, so-called foreclosure "rescues", debt consolidation schemes and old-fashioned fraud.
The report gives homeowners a checklist to help them guard against becoming a victim. Among the recommendations:
- Shop around, calling several savings and loans, banks and mortgage lenders;
- Beware of a second mortgage/home equity loan you did not initiate;
- Never sign any documents you do not understand and never sign blank documents or documents with blank spaces;
- Do not give in to high pressure tactics;
- Beware of scams which attempt to take advantage of individuals with similar interests or affinities;
- Lookout for loans with the following characteristics: (1) It is connected to an unsolicited home improvement contract, (2) it is made solely on the equity value of your home, not your ability to repay, (3) the interest rate is very high, greatly above current market rates, (4) the loan has a large balloon payment and is "interest only, non-amortizing or partially amortizing" and (5) the lender or broker requires you to pay high and non-refundable application fees.
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