Predatory, subprime, improvident? The mortgage industry is kicking around big words these days as foreclosures come home to roost in your neighborhood, on the next block, or maybe even in the house next door. -

Predatory lending is the criminal activity that we have become so familiar with from headlines and news reports. The lender seeks out a certain kind of homeowner -- an elderly or disabled person -- and then coerces him or her into signing a complex document that in not too long a time means they will lose their house.

"The predatory practices of the mortgage brokering industry were designed in many ways to rip people's equity out of their homes," says Thomas P. FitzGibbon Jr., executive vice president of MB Financial Bank, Rosemont. He's also an adjunct professor of finance at DePaul University in the Real Estate Center.

Subprime lending had an honest beginning that has changed over the past six years.

"Subprime lending was lending to the doctors and the lawyers, people who had tremendous upside income potential," says Robin Coffey at Harris Bank. "Sometime between 1998 and 2000 that changed, and it literally became getting a loan with no documentation and getting a loan without any income at all."

Subprime mortgages carry a higher interest cost, often with a lower initial monthly payment that balloons after a period of time.

Improvident lending is a unique combination of the two that has brought us these most interesting times.  "Improvident lending is defined as putting people into an inappropriately designed mortgage product that creates a failure scenario," FitzGibbon says. "This is the debate that is going on in the whole industry -- whether there is a responsibility of the lenders and their broker partners to insure that the product that is being used is suitable."

The Wall Street Journal reports that some states, including Ohio and Pennsylvania, are calling on mortgage lenders and brokers to do their best to put borrowers in loans that they are able to repay. And last week, federal banking regulators proposed guidelines for lenders who issue adjustable-rate mortgages to subprime borrowers.

Mortgage brokers, obviously, don't want any regulation, saying it would make providing mortgages too costly. We mustn't forget the uproar here in Illinois over HB 4050.

Buying a house or a condo is among the murkiest of transactions, with brokers representing the buyer and seller, appraisers, home inspectors, lawyers and others all showing up at the table in a compressed period of time to sign an incredibly thick and complex stack of legal agreements. But in recent years, the presence and behavior of some mortgage brokers has made the transaction even murkier.

There is too much at stake for homeowners and for the health of our neighborhoods for anything less than transparency.

"In the equities business, If I call on you as a stockbroker I would have to do a suitability profile on you," Fitzgibbon says. "There are some basic principles that could be put on you to do that."

"There is a lot of push back [from the mortgage industry]. Maybe because suitability, like predatory lending, is in the eye of the beholder," FitzGibbon said.

sduros@suntimes.com