Predatory Lending • Home Equity Loans • Home Mortgages • Mortgage Brokers

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The details change but the horror stories are essentially the same: Homeowners sign a contract with a non-bank finance company for a refinanced mortgage or home equity loan, usually to consolidate bills or pay for remodeling. They later realize that the interest rate is much higher than promised and that the loan includes thousands of dollars in unexpected fees that legitimate lenders don't charge. The result is a monthly payment that's higher than before - sometimes twice as high. Unable to pay, homeowners may eventually lose their houses to the lenders, who then sell the homes and make even more money.

"It's just legalized loan sharking," Robinson says. "It's like the Wild West in consumer finance."

It's gotten so wild, in fact, that Cleveland advocacy groups ranging from Consumer Credit Counseling to the Better Business Bureau are being bombarded by homeowners begging for help.

"We can't handle all of the phone calls," says Charles "Chip" Bromley, director of Metropolitan Strategy Group, a fair housing agency based in Cleveland Heights. Bromley's group earlier this month filed a $10 million lawsuit against Midwest National Mortgage Corp. on behalf of three consumers and hopes to pursue claims against others.

"These are middle-class people signing these loan papers. They're smart. They have educations," Bromley says. "But these companies misrepresent the truth."

Valerie Daniels feels she was lied to in a big way. The 49-year-old legal assistant with the local office of the U.S. Immigration and Naturalization Service says she was promised a lower monthly payment when she refinanced her Cleveland home in January.

But her interest rate ended up at 11 percent - even though she was promised a rate comparable to her current 7 percent rate. And the monthly payment jumped from $500 to $700. The divorced woman is working eight hours of overtime each week just to keep up with the payments.

"They said, We can take 10 years off your mortgage.' They're cutting 10 years off my life," Daniels says. "They're going to take my house."

Elaine James, housing manager for Consumer Credit Counseling Service of Northeast Ohio, hears constantly from frantic homeowners like Daniels, logging an average of six calls a day.

"These companies just want to foreclose on people's houses," James says. "Something has got to give."

There is nothing wrong with charging high-risk customers a higher interest rate - a practice known as subprime lending. Subprime lending allows people with less-than-stellar credit histories to obtain virtually any kind of loan by paying a couple of percentage points more than lenders would offer customers with good credit.

Banks, auto finance companies and other lenders flocked to subprime loans in the 1990s because of the high profit margins. In the past five years, the dollar amount of subprime loans outstanding, including first and second mortgages, has grown from virtually nothing to $500 billion. Subprime loans constitute about 12.5 percent of the total mortgage market today, according to the U.S. Department of Housing and Urban Development.

But predatory lending goes beyond subprime lending. Estimates suggest that half of subprime loans are made to people who qualify for low-interest conventional loans. Consumers with good credit often end up with high-rate loans because they respond to telemarketing calls or junk-mail fliers - instead of checking with actual banks or reputable lenders.

"These lenders want people to think they're in the B and C categories of credit, when they really have A credit," says Harold L. Williams, an attorney with the non-profit Legal Aid Society of Cleveland. "A lot of these people could get a good loan, but they don't know that."

In addition, consumer advo- cates say some lenders have preyed upon homeowners who are more likely to be desperate for money or less likely to understand the loan process. Senior citizens, single women and minorities were once favorite targets.

But because of confusing paperwork and limited regulation, everyone is fair game today, consumer advocates say.

"They used to target the inner city," Bromley says. "Now they've moved out to the suburbs. These victims are schoolteachers. They're grocery store managers. They're doctors. These are folks like your mother or brother."

James of Consumer Credit Counseling says more people are being taken in by predatory lenders because the brokers are smooth. Most have been trained with company scripts and know exactly how to gain people's trust on one hand and intimidate on the other.

Most consumers who end up victims never intended to borrow much money, Williams says. But they're massaged into believing a bigger loan or total refinance is the best idea.