Loans and liability
The article "Loan Scams Anger City Minorities," July 8, casts aspersions on an entire industry because of the accusations made by community activists in Boston. You say contractors "especially like to prey on elderly homeowners." Where is the evidence for that assertion? My research shows most home-improvement loans are to middle aged people. Very few loans are made to those over 65.The author states that contractors "often work as middle men for high-interest mortgage companies." I recently wrote a study on this question and found that contractors are typically self-employed carpenters whose motivation is to get home-improvement work. They can't do this if the home owner has no money. So they are in the position of seeking lenders to buy loans that will finance their work. In the current market very few lenders will buy such loans. The courts also have been ruthless in invoking the "holder in due course" provision, which makes the lender liable for shoddy work done by the contractor. Major lenders won't touch high risk/high interest loans. They fear attack by community activists and newspapers. My research shows only 5 percent of all second mortgages are at interest rates above 16 percent. It is always a shame when someone's home is foreclosed, especially if the borrower is elderly. But lenders don't seek out loans they think will go into foreclosure because they lose money on foreclosures. The current high rate of foreclosures in Massachusetts has more to do with the recession in that state than "unscrupulous home-improvement contractors" and lenders. David A. Olson, Budd Lake, N.J., SMR Research Corporation
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