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Banks prey on young and oldBig bank predatory lending practices that played a major part in causing the current financial crisis have been widely publicized. The good news is the lending industry has been forced to institute more realistic mortgage underwriting practices. The bad news is the same vultures are socking it to senior citizens with reverse mortgages and victimizing the young with collegiate credit cards. Banks and credit card companies frequently partner with universities to aggressively market cards to college students regardless of ability to pay. These co-branded cards have annual fees and high interest rates resulting in huge profits for banks and millions of dollars to universities. It begins with the placement of marketing booths or tables in strategic locations around campus. Free gifts such as t-shirts, Frisbees or even pizza are offered to students who complete a credit card application. Bingo, the trap is set! Credit underwriting standards are almost non-existent and inexperienced kids sometimes begin using credit without any thought of how the bill will be paid. A recent study by Sallie Mae concluded that half of college students have four or more credit cards and 82 per cent carry balances that incur finance charges. Seniors graduate with an average credit card debt of $4,100. We are putting a generation of college graduates with excessive student loan obligations and significant credit card debt into a society where there are few jobs. Young people deserve better. The collegiate credit card problem was partially solved by recent legislation passed by Congress. It prohibits gifts in exchange for completing credit card applications. The new law also prohibits banks from issuing credit cards to youngsters under 21 unless parents co-sign or the applicant can document sufficient income to handle the debt. These are steps in the right direction. The same money changers are again circling the prey, and this time it is senior citizens. Bank insiders see reverse mortgages for seniors as one of their most lucrative profit centers during the baby boomer retirement era. What is a reverse mortgage? It is a lending program for seniors with high equity in their homes or who own the property free and clear. It permits the borrower to take a lump sum payment or receive monthly payments while still owning and living in the home. Slick advertising campaigns put reverse mortgages at the same level as motherhood and apple pie when they are actually dangerous programs for the elderly. Interest rates are high and closing costs can exceed 14 percent. The maximum loan to value ratio is typically 50 percent, which eliminates almost all risk to the lender and puts the senior homeowner in jeopardy. The interest clock runs continually and interest is added to the loan obligation and compounded. It is a “rising debt, lowering equity” trap that has been carefully baited. The borrower typically owes about four times the original loan amount after 20 years. Reverse mortgages have to be paid off when the owner dies, sells the home, moves to assisted living or even into a relative’s home. Lenders typically give seniors or their heirs one year to sell the home before foreclosure. This can be upsetting to those moving into nursing homes or assisted living. Such relocations are traumatic enough without the added burden of worrying about disposition of personal belongings and furniture. The vultures who offer the program are virtually stealing the past from seniors. It is time for Congress to step in and regulate. I have a few random and unrelated thoughts to share with readers: • The manager of the Georgia Lottery received a $204,000 bonus in addition to her $286,000 salary in 2009. Other highly paid Georgia Lottery officials split another $2.5 million in bonuses. Their compensation is an outrage and legislation governing the Lottery Corporation should be amended to get salaries and bonuses in line with reality. I hope Senator Ronnie Chance and Representatives Matt Ramsey and Virgil Fludd are listening. • There is a troubling report that Georgia’s October revenue was down 18 percent from the previous year, and corporate income tax revenue was negative in October. The General Assembly will have to reduce salaries and lay off more teachers and state employees in 2011. The furlough plan wasn’t enough to solve the problem. • The Rockdale and Cobb County school systems are recognized for their excellent instruction and good financial management. These two school systems are completely debt-free because both used past SPLOST proceeds to eliminate bonded indebtedness. The Fayette School System measures up quite well in academics but receives an F in financial management. The board has raised the education millage levy to the maximum allowed by state law and is pouring SPLOST money into operations while applying a meager sum to debt service. It appears the system will go deeper in debt over the next three years. It is time for the board to wake up and face the problem. • November election results sent a mixed message to politicians. Continuation of the SPLOST was voted down by a wide margin. Yet, Peachtree City voters rejected Shelby Barker and David Craig, who were the most outspoken opponents of the SPLOST. Most Peachtree City Council candidates who made the runoff supported the SPLOST. Eric Imker is the only exception that I can recall. Grace Caldwell lost her council post in Tyrone reportedly because her voting record was inconsistent with campaign promises. Folks in the city of Fayetteville expressed happiness with the state of the city by re-electing incumbents. I hope the Peachtree City runoff election will result in a larger turnout and a clearer message from voters. I find it difficult to separate the sheep from the goats in these races. The candidates all say they support the land use plan, oppose Callula Hill, support the village concept, waffle on annexation and most of them will not completely rule out tax increases. They are similar in many ways. The key to this election is the unspoken and largely ignored issue of residential, commercial and industrial growth. We have races for mayor and council between a slate of no-growth candidates who want to close the door to outsiders versus slow-growth candidates who recognize the need for new business and industry to prevent continued erosion of the tax base. Enough said! [Scott Bradshaw, a resident of Peachtree City, is a real estate broker and residential real estate developer. He may be contacted at rand5474@bellsouth.net.] login to post comments | Scott Bradshaw's blog
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