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Multiple Problems With Old Mobile Home Loans
by Richard Insley, BOL Guru
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Question: We currently have about 50 mobile home loans that will be coming due this year and next. These loans were written with under liberal terms, most are on a 15 to 20 year am, some even with 30 year am, with 5 to 7 year balloons. Because of the declining value of the mobile homes, the principal amount coming due is, in many cases, greater than the value of the collateral. Some are with land, some titled. The bank is not anxious to refinance any of these loans (and is not contractually obligated to) and plans to encourage these borrowers to refinance elsewhere, telling them we no longer make these types of loans. We will be revising our loan policy to reflect this. However, if a customer threatens to walk away from the loan, we will refinance at different terms including pricing high enough to ensure at least some principal reduction. The decision to refinance any of these will be made case by case as will the terms of the refi. We'll treat them as work-out loans.

In addition to HOEPA coverage, I am concerned about possible disparate impact (probable higher percentage of minorities, families with children, single women,than the general population) and the fact this may appear to be predatory in practice (definitely not the intention). Assuming we can adequately document our "business necessity" for doing this, what is our risk in handing these mobile home loans in this manner?

Answer: Keep all the information used in your decision together in a file to document the analysis leading to your decision. Reduce your decision to a written policy so the standard is clear. You shouldn't worry about a claim of disparate treatment so long as your policy is applied equally to all loans of this type.

I don't think you need to worry about your exit from this product being "predatory" (whatever that includes this week) because you are not trying to draw customers in and abuse them. Quite the opposite, you are pushing them out of the bank.

First published on BankersOnline.com 8/18/03


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