N.Y. Bank Regulator Investigates ‘Hard Money’ Lending










New York regulator Benjamin Lawsky has begun investigating possible predatory lending practices at companies that originate short-term, high-interest loans secured by a borrower’s home.

Lawsky is looking into whether the companies, known as hard-money lenders, structured loans with the intention of driving borrowers to foreclosure.

“While many hard-money lenders may be engaged in legitimate financial activities, certain unscrupulous companies appear to be taking advantage of borrowers in tough financial straits by making loans that are designed to fail,” he said in a press release Tuesday.

The Department of Financial Services has issued subpoenas to nine lenders in New York, to assess whether they designed loans likely to default using high interest rates, fees and balloon payments with the goal of taking possession of a borrower’s property.

The department is also looking into the companies’ use of deeds-in-lieu of foreclosures, which allow lenders to take possession of a property when a borrower misses a payment.

News of the investigation follows Lawsky’s recent scrutiny into the businesses of nonbank servicers, which he said in May are “at risk of becoming fee factories.”

It also comes amid recent attention by New York prosecutors on the activities of high-interest lenders. Last month, Manhattan District Attorney Cyrus Vance Jr. filed usury charges against a dozen online lending companies and their owners. New York Attorney General Eric Schneiderman also recently announced a settlement with debt collector Forster Garbus over its collection of payday loans.

Companies that have been subpoenaed by the Department of Financial Services include Alton Ferris Capital Partners, IAS Group, Liberty Lending Group, Manitoli, Mercier Realty, Meritt Funding, PMG Lending Group, Quick Funding and Rushmore Capital Partners.

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