How predatory lending became acceptable to everyone

In the United States, years before the so-called “subprime crisis”, various financial businesses existed to serve the needs of the middle class. Among those were Household International, Citifinancial, and Avco. Household International represented the Household Finance (HFC) and Beneficial Finance brands.

As these companies were purchased or absorbed into parent companies, some were also charged with predatory lending. The brands learned how to push the law to the limits, and sometimes a little too far.

There was an implied class designation for those who used the finance companies. Most were blue collar, military, and those with lack of stability in their lives. This group later became known as subprime, although credit scoring drove the classification. The amount of risk relative to each loan mandated a higher interest rate.

Some loans were “second mortgage” loans, but the companies never filed documents at the courthouse. Household International’s HFC and Beneficial divisions gave customers the impression that loans were tied to their homes.

I didn’t take long for predatory loans to become acceptable subprime loans. Then the process moved to creative financing for prime customers and commercial loans.

There was an evolution of sorts. Unfortunately predatory lending – under a new name – spread to almost every aspect of home and business finance. Mortgages during the period are well known today, and the outcome effected almost everyone.

Two questions remain. How will future customers find valid financing? Also, why did American regulators ignore predatory lending before the practice went main stream? With the exception of Household International and Ameriquest, no charges were ever filed.

Year too late, SEC allegations, this time against Countrywide and Mozilo, are underlined by a trail of e-mail messages sent by Mozilo in 2006, before the subprime mortgage market collapsed.

In all my years in the business I have never seen a more toxic product,” Mozilo wrote Sambol in an e-mail, referring to subprime loans that let customers borrow 100 percent of a home’s value by first borrowing 80 percent in the primary mortgage and then 20 percent in a secondary loan.