And what's worrisome is that the industry, which has attracted some of the biggest names in American finance, is on the rise. Nationally, a disproportionate number of those loans are made in minority and low-income neighborhoods. Substandards L IKE MANY WHO have been duped unsuspectingly by subprime lenders, Rodriguez felt he had few options. This is where predatory lenders step in, capitalizing on the community's dearth of financial resources. According to Forbes magazine, home-equity subprime lending more than quadrupled from 1988 to 1998.
Greater risk translates into higher interest rates.
While there is a legitimate need for subprime loans for those whose credit is not up to par, the industry is rife with predatory lenders. And it has grown dramatically, increasing by 40 percent annually since 1993. Credit insurance, which pays off the particular debt if the borrower can't, is often unnecessary and many subprime lenders like Household own subsidiaries that sell the insurance. What's more, credit insurance doesn't actually pay the borrower, it pays the lender. So the lender, ultimately, pays the insurance claim to itself.