Easy, Predatory Credit is Still Out There

Posted on May 29, 2012


A financial basket case gets a six-figure loan

A longtime acquaintance was never very good with money.  She has established a long and quite predictable pattern of always earning barely enough money to squeak by each month, or not quite enough to squeak by.  I have known this woman to quit perfectly good jobs with benefits.  I have known her to turn down promotions that would have meant pay raises.  I have known her to prefer part-time work rather than full-time (she currently works part-time).  Her financial existence has been punctuated with repeated crises – her car, her home, her medical bills – that other people end up paying for:  her family, her friends, her church congregation.  Any responsible person can see the problem here, when one persistently earns barely enough to exist and has no savings.

When her parents died, they provided for their children.  Having no illusions about their daughter, they bought her a modest house during their lifetimes, and established a trust fund to pay the mortgage.  Now, many years later, the mortgage is paid, the trust fund is expended, and she owns her home, free and clear!  The parents’ dream of providing a secure home for her was realized!

Imagine my dismay when I learned that she immediately took out a six-figure loan to build a new home, using her property as collateral.  My first thought was, Who the hell would lend this woman anything?  In her lifetime, she has left a trail of broken friendships and estranged relations, all over money issues and the fact that she also has a history of running cars and rental homes into the ground.  She has even seen a church or two dry up on helping her out.  Her parents bought her home for her, because she could not.  And yet, some lender approved her for a rather large loan.

And that was my second thought:  She won’t be able to make the payments, and she is going to lose everything.  I very much hope that I am wrong, but I have known this person for a long time, and my hopes are dim indeed.

What I don’t understand is this:  her credit score has got to be pretty low.  The lender knows this.  The lender should also have asked about her income as one measure of her ability to repay the loan.  But I think all that the lender saw was the fact that she owns property, and when she defaults, the property will pass to the lender.  Not too shabby, either, that there will be a brand-new home on that property.  So… if the lender knows that she is low-income, knows that her credit score is low, and lends her six figures anyway, knowing that she is likely to default and have to hand over her property… how is that not predatory?