Predatory lending is the practice of approving loans for borrowers in which the lender takes unfair advantage of borrowers. This is done by not verifying whether or not the borrower can repay the debt, charging unreasonably high interest rates and loan fees, and other fees that should not have been charged at all.
The legality of the loans come into question because they are made without regards to the credit histories or the financial status of the borrowers.
In essence, preditory lending practices are carried out by lenders who make loans that should not be made in the first place. Many of the end results are harmful to the borrowers and to the ecomomy as a whole. The borrowers get stuck with loans that they can't begin to repay and in the end, the lenders get stuck with properties that they don't want, due to high numbers of foreclosures.
All of the blame shouldn't fall on the lenders. The governmental agencies that oversee the loan and mortgage industry sometimes fail to enforce and regulate fair lending laws that were put in place discourage such practices.
And borrowers have to take their fair share of the blame, too. Although some were unfairly targeted, many borrowers knew what they were doing when they got their loans. The lure of quick and easy real estate loans was to good to be true, so they jumped into the market without adequate preparation.
Predatory lending practices is not a new phonomenon. Think back to the 1980's when the Lincoln Savings, and the Silverado Savings scandals hit the airwaves. Back then, like today, federal and state laws that were set up to protect the general population were swept to the side while money and greed took center stage.
The difference today is that before the governmental agencies who are empowered to regulate the mortgage industry stepped in to stop the abuse, many smaller lenders had jumped into the predatory lending frenzy and now, it is just a matter of time before the full impact is felt.
Anyway, the predators were given an open market, and they did what predators do, they took advantage of the poor, the elderly, and many of the others who should have known better.
One of the big results of what has taken place in the housing market is the potential for a huge number of foreclosures and bankruptcies, although some experts believe that the outlook may not be as bad as it seems.