Return of the Predatory Lending Rip-Off
Five years after the bubble burst, subprime-mortgage-style avarice is making a comeback. Consider HR. 1077 and S. 949, a pair of industry-backed bills to re-legitimize one of the slimiest practices of the bubble years – the lender kickbacks that sent armies of brokers out across the land promoting dangerous and deceptive loans, especially in low-income areas and communities of color.
Subprime lenders often charged high up-front fees, and they rarely held onto a loan long enough to care whether it got repaid. They were also fond of a form of broker commission known as a yield spread premium, or YSP, which was basically a reward for sticking a borrower with a needlessly expensive or risky loan.
YSPs were a major driver of abusive lending. More than 85 percent of subprime mortgages included them, with brokers typically collecting $1,000 dollars or more for getting people to accept tricky loans that would cost them extra money and erode their equity (the best-case scenario) or push them into default and foreclosure (the all-too-common worst case).
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