Predatory Lending

About Predatory Lending

It can be any or all of the following:

  • A loan designed to strip equity from the owner of the property
  • An unaffordable or unreasonable loan designed to be refinanced repeatedly
  • A deceptive loan designed to force the owner into foreclosure

What To Watch Out For

  • A loan with payments you cannot afford
  • Product steering (being guided toward a loan that is not in your best interest)
  • Excessive fees and points paid to mortgage lender, real estate brokers or appraisers
  • Flipping (repeated refinancing)
  • Prepayment penalties without disclosure
  • Single Premium Credit Life Insurance Policies
  • Daily interest changed when payments are late
  • Upfront fees or costs just for making a loan application

Predatory Loan Indicators & Sales Practices

  • Aggressive solicitations to targeted neighborhoods
  • Steering due to protected class to high rate lenders
  • Home improvement scams
  • Purposely structuring the loan with payments the buyer cannot afford
  • Falsifying loan applications such as inflated income level, assets or incorrect age
  • Changing loan terms at closing
  • Loans in excess of 100% of the value of the property
  • Adding insincere co-signers
  • Making loans to mentally incapacitated homeowners
  • Failure to provide accurate loan payoff amounts
  • Forging signatures on loan documents
  • Paying off lower interest mortgages

Predatory Loan Terms

  • Inflated appraisal values
  • Excessive broker fees
  • High points
  • High annual interest rates
  • Padded closing costs
  • Balloon payments
  • negative amortization
  • Required credit insurance
  • Required homeowners insurance with a particular company
  • Falsely identifying loans as lines of credit
  • Itemizing duplicate services and charging separately

Things To Not Do

  • Sign a blank document or anything to be filled in later.
  • Sign anything you don't like or don't understand.
  • Trust an ad promising "No credit? Bad credit? No problem."
  • Stop making your current house payment while you wait to close on a loan.
  • Be afraid to ask questions or seek outside advice.

What To Do

  • Know your rights
  • Trust your instincts
    • Be cautious of trusting someone you just met that wants to be your best friend and sell you something at the same time.
  • Shop around
    • Get a second opinion from another lender.
    • Seek advice from housing professionals before you make a decision.

Before Signing Loan Documents

Before signing loan documents, you have the right to know:

  • The monthly payment amount
  • The total cost of the loan (the amount you must repay including interest and fees)
  • The annual percentage rate
  • How long you have to pay back the loan
  • If there is a prepayment penalty
  • Whether taxes and insurance are included in the payment
  • If there is a balloon payment (lump sum due)