Study: 'Abusive' Lending Leading To Foreclosures
Credit Union Journal, The, January, 2005
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Abusive practices by payday lenders lead to additional home foreclosures against borrowers, according to a new study. The analysis, performed by the Center for Community Capitalism at The University of North Carolina at Chapel Hill, found that predatory loan terms, namely prepayment penalties and balloon payments, increase the risk of mortgage foreclosure in subprime home loans, even after controlling for the borrower's credit score, loan terms, and varying economic conditions.
"The study demonstrates that subprime prepayment penalties and balloon payments place Americans at substantially greater risk of losing their homes," stated Dr. Michael A. Stegman, Director of UNC's Center for Community Capitalism.
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Subprime loan originations grew more than nine-fold, from $35 billion to $332 billion between 1994 and 2003, the study notes. In the fourth quarter of 2003, 2.13% of all subprime loans across the country entered foreclosure, which was more than 10 times higher than the rate ...
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