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
- Become familiar with what questions to ask before signing loan documents.
- If you are refinancing, you have the legal right to change your mind up to three days after the loan closes.
- Attend a homeownership education course offered by the U.S. Department of Housing and Urban Development (HUD)-approved, non-profit counseling agencies.
- Meet with a housing counselor to review your loan documents with you.
- 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)