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Predatory Lenders Target Indians

LAS VEGAS ? Predatory mortgage lenders have targeted Indian country, but individual Indians and tribes can learn the signals that indicate someone is trying to take advantage of them.

"Predatory lending is alive and well in Indian country," said Jane DeMarines, communications director of the National American Indian Housing Council, at a legal symposium held here by NAIHC affiliate the Council for Indian Housing and Development.

DeMarines cited a NAIHC survey in which a stunning 65 percent of Indian respondents reported being victimized by lenders who charged them as much as 25 percent interest on mortgages.

Jean Garrison, affordable housing consultant for PMI Mortgage Insurance Co., San Francisco, agreed with her, saying predatory lending is "a very serious problem facing Native Americans."

And Craig Nolte, community affairs advisor for the Federal Reserve Bank of San Francisco, made it three by saying "Indian country is ripe for predatory lending."

Garrison said ripoff lenders are targeting the elderly and those who have Mutual Help homes with small or no balances.

Excessive fees up to 10 or 15 percent of the loan amount have been reported, she said.

Her company has been working on getting victimized Indian borrowers out of their loans, including buying their homes in foreclosure, but she noted that there can be high prepayment penalties that make it hard to pay off one loan and take out another, more reasonable one.

"You're talking about thousands of dollars," she said. "We're talking about people that don't have thousands of dollars."

What to do? Work with reputable lenders, such as Wells Fargo Home Mortgage, Washington Mutual Bank, or Holliday American Mortgage, she said.

Also, tribes should familiarize themselves with reputable affordable housing and "scratched credit" products attainable through Fannie Mae or Freddie Mac, the semi-federal housing agencies.

One of those is the Timely Payment program, which starts out with a higher interest rate for those with blemished credit, but then cuts the rate automatically if the borrower makes 24 payments on time.

Education is a key to deterring abusive lending, she said. "We need to get to our people before the predators do."

Nolte gave the meeting a checklist of seven telltale signs of a predatory lender:

1. A lender that targets vulnerable homeowners that have a lot of equity in their homes but little income.

2. A loan that is based on the equity in the

home, rather than the borrower's ability to repay.

3. "Packing" that adds expensive and extraneous items into the amount to be financed, such as single-premium homeowners insurance.

4. "Stacking" that rolls high origination fees into the mortgage note.

5. "Flipping" that refinances a home several times in quick succession to earn origination fees and meanwhile strips all of the homeowner's equity.

6. A "balloon" feature that means a homeowner must refinance every few years, instead of the customary 30-year period.

7. Excessive prepayment penalties.

Nolte said many Indians are victimized because "they don't think they have an alternative." In addition, their reservations may not have the kind of foreclosure and eviction ordinances on the books that would give a reputable lender the comfort to extend a mortgage on a leasehold, since the land itself cannot be mortgaged.

Nolte recommended tribes adopt the laws necessary to attract non-abusive lenders; offer financial literacy courses to tribal members; appoint a credit consultant to serve the tribe or Indian Housing Authority and learn more about how the Community Reinvestment Act can be used to attract lenders.

The CRA, which encourages lenders to lend in areas where they take in deposits, can give tribes leverage with lenders, Nolte said, since a bank with a poor CRA rating can have trouble getting mergers approved.

He encouraged tribes to work with bank CRA officers, since that is often a way lenders get into new areas.

He also said tribes could check on lenders' CRA assessment areas (to see if their tribal land is included) by logging on at ffiec.gov.

In other news at the conference, the US Department of Agriculture's Rural Development agency said it made $130 million in loans to Native American communities or individuals during fiscal 2000.

That's up nearly tenfold from $15 million just five years ago, noted Dave Saffert, Native American coordinator for RD.

The allotment is one percent of a total budget of $13 billion -- in line with Indian percentage of the national population but not in proportion to their population in rural areas, he said.

RD's Rural Housing Service 502 mortgage program gave loans to 232 people who identified themselves as Native Americans, Saffert said, 52 of whom lived on tribal trust land. The RHS 504 program for rehabilitation made loans to 130 Native Americans, 88 on trust land, he said.