Monday, September 08, 2008

DESPITE CRACKDOWN MORTGAGE-LENDING FRAUD CONTINUES IN ILLINOIS

Despite the nationwide economic chaos and home foreclosures caused by the subprime loan debacle, 2008 still is shaping up as a boom year for lending fraud as scam artists continue to ply their trade.

And, Illinois continues to be one of the leaders in consumer lending fraud as loan rip-off artists continue to churn out bad mortgage deals using phony credit reports and false income verification, fake employment records, inflated appraisals and straw buyers, mortgage experts warn.

The Internet is a major tool used by scam artists hawking fake income and employment verifications, according to a quarterly report by the Mortgage Asset Research Institute, and some of the worst abuses occurred in Illinois, along with Florida, California, Maryland, and Michigan.

Outdated record keeping by under staffed local governmental units has provided little if any defense against con artists filing inflated appraisals and fake lien releases from banks and mortgage companies, the report said.

Meanwhile, a new report by Consumer Federation of America, Consumers Union, and the National Consumer Law Center revealed that many states—including Illinois—are failing to provide adequate protections for consumers against abusive lending practices.

“Americans who fall prey to abusive lending practices pay more to borrow money and often end up trapped in an endless cycle of debt,” said Jean Ann Fox, director of financial services for Consumer Federation of America.

“Unfortunately, many states aren’t providing consumers with the protections they need to avoid being ripped off by modern day loan sharks.”

States have historically taken the lead to ensure that consumers are not subject to abusive lending practices. The report evaluated how well states have exercised this responsibility by examining the statutory maximum annual percentage rate (APR) of interest for four typical small loan products—payday loans; auto title loans; 6-month, $500 unsecured installment loans; and 1-year, $1,000 unsecured installment loans.

Illinois and 13 other states, including Wisconsin and Missouri, are failing to protect consumers against abusive lending for all four products, the report concluded.

States received a “passing” grade if the loan product’s annual-percentage rate (APR) was 36 percent or less or if they prohibited payday or auto title loans, consumer advocates said. States that did not have a cap on the loan product’s APR or those that allowed a loan product’s APR to exceed 36 percent received a “failing” grade.

The 36 percent rate cap on small loan lending became a part of civil law in most states by the mid-20th century to address the widespread problem of loan sharking.

In 2006, Congress enacted a similar 36 percent cap for extensions of credit to active-duty service members and their dependents because of concerns that many were being trapped in debt by abusive lending practices.

“The current subprime mortgage crisis shows how abusive lending practices harm not only individual consumers, but also the overall economy,” said Elizabeth Renuart, attorney with the National Consumer Law Center.

“Now that the economy is so tight for cash-strapped consumers, it is more important than ever for states to provide reasonable protection against rate gouging by small lenders,” Renuart said.

“Reasonable rate caps are essential to protect consumers, lenders who charge reasonable rates, and the economy,” she said. “After all, nations have imposed usury caps since at least Biblical times in recognition of the consequences to society when the price of debt drives citizens to destitution.”