Augusta, ME - Predatory lending practices cost Mainers at least $23 million a year, say Coastal Enterprises Inc. and the Center for Responsible Lending in the first comprehensive study of predatory lending in Maine.
These predatory practices endanger the homes and financial security of some of Maine's most vulnerable citizens. Based on the findings of the report, approximately 1,000 families are affected each year by these practices.
"Our findings are not about Maine banks and credit unions which serve our communities," said Ron Phillips, president of Coastal Enterprises. "Rather, it's about the aggressive and exploitative practices of a segment of the fast-changing mortgage industry that's causing the problem."
That segment is the out-of-state lenders which dominate Maine's corner of the subprime mortgage market, where people who may not qualify for conventional credit borrow. Subprime lending plays an important role in access to credit and is booming in the nation, but at the same time predatory practices have been flourishing in a subset of this market. Maine's subprime market, too, is booming. It jumped more than 400 percent in the five years through 2004, to 8,000 mortgages.
Among the study's conclusions: In 2000 alone, the study estimates, Maine homeowners lost more than $23 million to predatory lenders, and the problem is growing.
The study found that a disproportionate number of these loans go to rural areas and minorities. Furthermore, a quarter of the people who were in foreclosure in four Maine counties had mortgages with at least one predatory characteristic.
One problem the study uncovers is the extent to which Mainers could get regular mortgages. As many as 15 percent of borrowers qualified for cheaper loans than they actually got.
The study describes a number of predatory practices. One example of these characteristics: "prepayment penalties over two years," which prevent people from refinancing and keep them chained to expensive loans. Another example: Excessive points and fees that strip homeowners' hard-earned equity, threatening them with the loss of their home, bankruptcy and ruined credit.
Some of Maine's lenders and brokers say the state needs to curb abuses of predatory lenders:
"As a lender, with twenty years of experience," says Tony Armstrong, President of Maine Home Mortgage, "I can tell you that I think greater consumer protection laws are needed and this won't prevent anyone from getting a loan. They just won't have to pay as much."
The study recommends strengthening a 2003 state law, building on the experiences of other best practice states. For example, now protections for consumers don't kick in until the lender's points and fees reach 8 percent of the loan. The study suggests lowering the threshold to 5 percent as in Massachusetts and North Carolina.
And Maine law only bars "flipping," when a lender racks up excessive fees by convincing a homeowner to refinance repeatedly, in a small percentage of loans. North Carolina and New Mexico, two states with strong laws, prohibit all flips.
"There is real risk here to whole communities and to the state when people lose their homes and their savings," said Uriah King, policy associate at the Center for Responsible Lending. "And all the evidence from our study points to the probability it's only going to get worse."
That is one reason Maine Attorney General Steven Rowe supports stronger protections for Mainers.
"Thanks to the work of CEI and CRL in producing this report, we now have a much better understanding of the size and nature of this problem. Hopefully the report's conclusions and recommendations will result in stronger protections against these unfair and deceptive consumer practices," he said.
The study demonstrated that predatory lending is a problem in Maine. "We've made several recommendations on new legislation to improve Maine law, and we look forward to working with legislators and stakeholders to address this issue," said Ron Phillips of Coastal Enterprises.
To read the study, done with support from the Baltimore-based Annie E. Casey Foundation, the Maine Attorney General's office and the Maine chapter of the American Association of Retired Persons, go to Coastal Enterprise's website, http://www.ceimaine.org, or the Center for Responsible Lending, http://www.responsiblelending.org.
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About Coastal Enterprises
Based in Wiscasset, Maine, Coastal Enterprises (CEI) is a Maine-based nonprofit community development corporation and community development financial institution whose mission is to help create economically and environmentally healthy communities in which all people, especially those with low incomes, can reach their full potential. CEI makes loans, invests and provides technical support to develop natural resource industries, small and micro businesses, affordable housing, commercial and mixed-use real estate and community facilities throughout and other rural regions of New England and upstate New York.
For more information: contact Hannah Thomas of Coastal Enterprises, (207) 882-7552 ext. 127 or hlt@ceimaine.org; or Michael Flagg at the Center for Responsible Lending, (202) 366-8417 or mike.flagg@responsiblelending.org.