A trade group of mortgage brokers boldly waded into Merriam-Webster territory Thursday, putting forth a definition of the hot-button topic of "predatory" lending.
By pinning a description on the issue, the California Assn. of Mortgage Brokers said, home buyers may be able to keep themselves from becoming victims of unscrupulous lenders or brokers.
The organization also issued its first "Best Practices" manual of ethical guidelines and professional standards for mortgage brokers.
"We expect members of our industry to conduct themselves with the highest levels of integrity and to educate consumers about the lending process," said Jon Eberhardt, president of the brokers' group, at its annual convention in Long Beach.
The issue of "predatory" lending has mushroomed into a national concern. Victims tend to be the elderly and people with low incomes. Many are equity rich and cash poor, and are enticed by sales agents promising low fees and payments without explaining the risks.
Two years ago, the now-defunct First Alliance of Irvine was accused of using a tricky sales pitch to conceal onerous fees. The company eventually settled by agreeing to pay as much as $60 million.
Since then, a smattering of state and local governments including the city of Los Angeles have adopted anti-predatory lending laws.
The mortgage broker industry maintains that educating the public about nefarious lending practices would be more effective than creating a "patchwork" of laws that may restrict brokers from pursuing customers who have less-than-stellar credit.
Indeed, some brokers and lenders offer nothing but such "sub-prime" financing. That segment of the industry has exploded as interest rates dipped to historic lows in recent years and housing prices skyrocketed. Many newer brokers "don't have the knowledge or expertise" of career brokers, which can lead to bad practices, Eberhardt said.
That's why the California group devised its own definition of "predatory" lending, which it describes as "intentionally placing consumers in loan products with significantly worse terms and/or higher costs than loans offered to similarly qualified consumers in the region for the primary purpose of enriching the originator and with little or no regard for the costs to the consumer."
Consumer advocates said the brokers' one-sentence definition was intentionally vague and did more to muddy the waters than clarify "predatory" lending.
The brokers "think they should be doing something and they prefer not to do very much," said Kevin Stein of the California Reinvestment Coalition, a group of nonprofit organizations that promotes fair lending. He said his organization would rather see the brokers use their clout to get tougher consumer-protection laws.
Assessing the influence of the California Assn. of Mortgage Brokers is thorny. The organization has about 3,000 members; the number of people licensed in California to originate loans is upward of 100,000, according to the Department of Real Estate.
What's more, many of the complaints about fraudulent lending practices stem from the tactics of loan sales representatives, who are not licensed by the same agency.
Such salesmen "don't have a fiduciary duty to homeowners" the way licensed mortgage brokers do, said Bill Denny, a deputy district attorney in Alameda County who prosecutes criminal real estate fraud.
Still, he called the brokers' effort at defining "predatory" lending helpful. "What would be even more beneficial would be for the brokers to assist us with fighting predatory lending," he said.