Mortgages are predatory and no one says anything about it, because it is the accepted norm, like the old saying goes, " monkey see, monkey do." However, This is an area that requires our attention and revision in a world where defending civil liberties, rights and privileges are fought for in a litigious society. It is predatory because it benefits the lender and bites the ankles of the homeowner's equity.
Mortgages should be like a car note, because the homeowner would be left with more equity in their home. Mortgages are how the rich keep the poor down on the ground for a much longer time than reasonably necessary. It is unfair, unequal treatment of economic social class, and a classic case of predatory lending. Home loans should be linear like a car note, instead of curved, literally, to favor the lender. It's simply predatory and something should be done about it.
WHAT IS PREDATORY LENDING?
Predatory lending refers to unethical, deceptive, or unfair lending practices that take advantage of borrowers, often exploiting their lack of understanding or financial vulnerability. These practices are designed to benefit the lender at the expense of the borrower and can lead to financial harm for the individuals involved. Predatory lending practices can occur in various types of loans, including mortgages, payday loans, auto loans, and personal loans.
Another topic to explore is hard money loans, private mortgage insurance (PMI, or MIP) and why it's required if it's already backed by Federal Housing Administration (FHA), and in an appreciating market. That insurance payment money should be refunded at the time of sale. But, that's a separate discussion. Time for a little background.
WHAT IS A MORTGAGE, AND WHERE DOES IT COME FROM?
Amortization is rooted in the broader principles of finance and accounting, and its development is a result of the need to account for the repayment of loans in a systematic and structured manner. The term "amortization" itself is derived from the Latin word "amortire," meaning "to kill" or "to die," reflecting the gradual reduction or "killing off" of a debt.
Amortization, prior to the FHA, mortgages did not have an amortization period. Instead, mortgages involved paying a series of interest-only payments with one large balloon payment at the end of the term which was the entire principal of the loan. This made defaults a common occurrence and discouraged lending, which is why the FHA created the idea of amortization. Amortization involves paying off both interest and principal amounts with each payment, like a budget loan. Has lending improved? Yes, it has but it is a costly practice that the lower class must participate in at full exposure, and this is where the inequality starts to surface.
Amortization can be used as a tool to get out of the world of leverage and into a class where a portion of the amortization is used over time and discipline in personal financing is mandatory to rise into the upper middle class. In fact, it might take an entire generation to gain access into the upper class and avoid lending in its entirety. Only then, will the mortgagor become the mortgagee.
WHO REALLY BENEFITS FROM A MORTGAGE?
The lender of course! Why is the interest of an amortization schedule front loaded and a car loan isn't. Well, it's because the mortgage industry knows that the typical home owner will move within 5-7 years they say. The argument then becomes- It doesn't matter because the lender is paid back in full at the time of sale, so the lender shouldn't charge 250% APR. Sure, the mortgage interest rate might be 5%, but check the Loan Estimate. Thanks to the Truth in Lending Act (TILA) people can now see what actual cost of the mortgage is in terms of APR which is comparable to a car note.
WHAT IS THE TRUTH IN LENDING ACT?
TILA is a federal law in the United States that aims to promote the informed use of consumer credit by requiring lenders to disclose key terms and costs associated with loans. TILA ensures that borrowers receive clear and accurate information about the terms of their loans, enabling them to make informed decisions and compare different loan offers.
The Annual Percentage Rate (APR) on a mortgage loan may appear high for several reasons, and understanding these factors can help borrowers make informed decisions. The APR reflects the total cost of borrowing, including not just the nominal interest rate but also other associated fees and costs. Here are some reasons why the APR on a mortgage loan might be relatively high:
The APR includes not only the interest rate but also various fees associated with the mortgage, such as origination fees, points, and closing costs. If these fees are high, it can contribute to a higher APR. Since it's front loaded that means that most of the payment is interest and that is why the APR is reflected as high as 250% at the current moment. It is predatory because it benefits the lender obviously and bits the ankles of the home owner's equity.
Note, the golden ratio is 2.25% on a 30 year. Ask me why...
Home loans should be linear like a car note and curved to favor the lender. It's simply predatory and something should be done about it.
Furthermore, Usury refers to the practice of charging excessive or unlawfully high interest rates on loans. In many jurisdictions, laws exist to prevent usurious practices and protect borrowers from exorbitant interest rates. The determination of what constitutes usury can vary by region and is often regulated by local or national laws. Conforming mortgages are usury on the APR level, but why is this ok?
A mortgage itself is not inherently considered usury. A mortgage is a type of loan specifically used for real estate transactions, where the property being financed serves as collateral. However, whether the interest rate on a mortgage is deemed usurious depends on the applicable laws and regulations. In other words, it's a protected practice.
Historically, usury has been a topic of ethical and religious consideration within Christianity and many other religious traditions. Usury is generally understood as the charging of excessive or unreasonably high interest rates on loans. While views on usury have evolved over time, there are historical perspectives rooted in religious teachings, including Christianity.
Biblical References:
The Bible, particularly the Old Testament, contains verses that address the lending of money and charging of interest. For example, in the Old Testament, there are passages that discourage the charging of interest among fellow Israelites. One notable verse is found in Exodus 22:25 (NIV), which states, "If you lend money to one of my people among you who is needy, do not treat it like a business deal; charge no interest."
Concern for the Poor:
Christian teachings often emphasize compassion, charity, and concern for the well-being of others, especially the less fortunate. Charging excessive interest rates could be seen as exploiting those in need and contradicting the principles of social justice and compassion.
Historical Church Views:
Throughout history, the Catholic Church and some Protestant denominations have had varying positions on usury. At different times, the charging of interest was strictly prohibited by church authorities. Over time, interpretations and policies evolved, and some Christian traditions modified their views on usury.
Ethical Considerations:
Usury is viewed as an ethical concern within Christianity because it involves profiting at the expense of others in financial need. The focus on ethical behavior and the Golden Rule ("Do unto others as you would have them do unto you") underscores the importance of fair and just treatment. It's important to note that views on usury within Christianity can vary among denominations and theologians. In contemporary times, many Christian groups do not strictly prohibit the charging of interest, and interpretations of relevant biblical passages may vary. Some Christian financial ethics emphasize responsible and fair lending practices, recognizing the importance of ethical conduct in financial transactions.
Overall, while historical Christian perspectives on usury may have included prohibitions or restrictions, modern interpretations and practices vary, and many Christian individuals and institutions engage in lending and borrowing within the bounds of legal and ethical considerations.
About the Author:
David Armenta is a real estate broker and owner of Armenta Realty. He is also a mortgage lender with the One Brokerage.
