Volume 15, Issue 3

2004

 

This overview of the predatory lending process provides an introduction to the structure of the larger mortgage lending industry and the way predatory lending fits into it.  The article begins with a description of the mortgage marketplace and its players. Next, it examines distinctions among the prime, subprime, and predatory segments of this market, particularly as they relate to risk, pricing, and borrower characteristics.

 

The remainder of the article describes the characteristics of predatory loans and their life cycle, from marketing and origination to securitization and servicing. The article closes with a description of the revenue source(s) for each of the actors and the effect of that revenue stream on the actor's incentives. The conclusion summarizes observations about the goals of predatory lenders and notes that by accomplishing these goals, lenders undermined the wealth-building capacity of affected homeowners.