Predatory Lending Practices Essay Example | Topics and Well Written Essays - 1500 words

Predatory Lending Practices - Essay Example When lenders began offering loans to deprived borrowers with low or bad credit standing, sub-prime loans were priced higher to compensate for the risk. Regardless of the a client's personal credit history, these finance companies offer the chance and allowance of refinancing or new mortgage that overwhelms he borrower with high fees and expensive often unhelpful terms. Minority borrowers composed of hard working people and low-wealth are the usual of consumers availing this type of loan to obtain financing. Availability of fair credit terms should be a major priority for responsible lenders as people no matter what the noted deficiencies are members of a civilized society with moral rights to uphold regardless of condition of credit orientation. However, seemingly cognizant of the needs of this minority sector, financing institutions have blossomed giving effect to what has been observed as a tragic loophole in Federal reserves that charges people with exorbitant interests and penalt ies. When the growth in equity lending has created risk management practices in response to financial institutions with equity lending programs, financial institutions' credit risk management practices for home equity lending have not kept pace with the product's rapid growth and easing of underwriting standards. We have seen numerous fore-closures on home properties in the past years that would eventually reflect in an economic meltdown. Further studies revealed predatory practices of lending institutions as the culprit in this scenario that charged exorbitant and often unnecessary fees and interests into the gross amounts that may no longer be viable for a medium to low wage earning homeowner. How can management eliminate the negative symptoms How can management fully capitalize on an opportunity Risk Management standards would create a favorable scenario over the increased lending with favorable tax treatments that may allow home equity loans and lines attractive to its consumers that offers a modest repayment schemes and relaxed structures that was currently devoid in its system. Institutions should capitalize on the rise on home values coupled with lower interest rates that make a product more attractive yet attainable and helpful to its user. The identification of certain risk factors in the system of practices in a financial lending institutions helps to identify the culprits that serves to practice certain features that offer an "interest-only" amortization that requires no principal amount applied. Documentation or its absence provides no room for evaluative measures and appraisals within the healthy structure. Risk management systems call for lending measures conducted in a safe and sound manner pursued with adequate allowances for loan losses and appropriate capital levels without negating sound practices in the accepted lending policies. Management principles actively assess the changes in the consumer's ability to pay and the potential decline of a home value and entertain this scenario without generating allowances that charge exorbitant fees disabling the capacity of the borrower from paying his dues and eventually leading to the