What Is Predatory Lending?
If you aren’t sure what Predatory Lending is and want to make sure that it does not happen to you, then this article is going to be a great benefit to you. As much as we would like to deny it is happening in the mortgage industry, the fact of the matter is there are some bad apples out there and if you aren’t careful, you could find yourself as a helpless victim in this act.
Predatory Lending is when a borrower is issued a loan that is a benefit to the lender but severely affects the ability of the borrower to pay for and repay the loan through suspect lending practices. Through your loan process if there was any unethical, deceptive, or unfair processes or activities, you could very well have been subject to Predatory Lending.
Unfortunately, there is normally a type of borrower that predatory lenders seek out and it is minorities, the elderly, the poor, and the uneducated. If the lenders can see or pick up on a weakness that borrowers have, they may do all they can to exploit this and make it to their advantage for financial gain.
For example, if there is a borrower who recently lost their job or had to take a less paying job, but they are set on purchasing a home, the lender can take advantage of the situation. Since there is desperation from the borrower, the lender can use this opportunity to charge a lot higher mortgage rate than they would be charged otherwise.
Predatory Lending Practices and Loans
It is in your best interest to be aware of the different loans and practices that are shown by lenders in order for them to benefit monetarily. In the list below you will see different types of loans and practices and how they can affect borrowers. Please make note if you are approached with any of these scenarios that you remove yourself from the situation immediately and get in touch with us right away so you can work with a reputable lender who will give you an honest opinion of your loan options and loan programs suitable for you.
- Excess Fees / Hidden Fees: This is a common practice for deceptive lenders to partake in and if you haven’t read my article on the Loan Estimate then you need to go back and read it so that you are aware of the fees that are associated with your loan. Legally, all fees that are needed to facilitate the funding of the loan need to be clearly outlined and followed. If you aren’t careful and double check these fees accordingly you can find yourself paying excess fees or hidden fees that lenders will try to get you to play. The best advice here is to ask a lot of questions with regards to fees and shop around to make sure the fees you are quoted for seem reasonable.
- Balloon Mortgages: Balloon mortgages are a loan type that are currently being used, however, you need to get all the details associated with the balloon payment to make sure that there are no surprises down the road. A lot of times lenders will make the initial payment before the balloon is due very attractive, however, the balloon payment at the end is an excessive amount. With this excessive amount it is normally planned that the borrower won’t be able to afford the payment which may force them to refinance the amount with another high interest rate loan or worst case would be foreclosure. The goal in this scheme is to have the borrower pay high interest payments without paying much principal at all thus allowing the lender to make a lot of money on the loan without the borrower having a chance to pay it off.
- Negative Amortization Loan: This type of loan is very deceptive when it comes to taking advantage of unsuspecting borrowers. With a negative amortization loan, the borrower will make a monthly payment, but that payment will be so small that it won’t even be enough to cover the monthly interest associated with the loan let alone paying down any of the principal. You could get stuck paying on this loan for years only to show that not you owe significantly more than when you took out the loan. This puts an even bigger debt on the borrower when they are under the assumption they are getting closer to home ownership.
Predatory Lending: How To Protect Yourself and Warning Signs
- If you aren’t aware of Predatory Lending, you need to be or you could get stuck paying on a loan that you should have never signed for. However, if you can determine or identify the predatory practices, you will definitely be better off and can help yourself and safeguard against Predatory Lending.
- Make sure your loan officer is licensed in the state you are looking to purchase a home in. Be very leery of someone “cold-calling” your home trying to sell you a loan or an option to refinance. Be especially leery if you are approached with a salesman who is knocking on your door.
- Be aware of excessive promises made by the lender that ensures that you are going to get a loan regardless of credit standing. If you have done your research on this site and you know that you cannot qualify for a loan, be nervous about someone who promises you a loan.
- Read through all your documents thoroughly and make sure you aren’t signing anything that has empty spaces where there should be numbers or words otherwise. If something looks fishy to you make sure you have a friend or someone you trust check it out to make sure everything seems right. You don’t want to allow the lender to add verbiage into the documents at a later date after you have already signed.
Predatory Lending: You Are Protected!
There are plenty of federal laws and regulations that protect borrowers against predatory lenders and Predatory Lending practices. Under ECOA or the Equal Credit Opportunity Act it is illegal for lenders to impose higher rates and fees due to race, color, religion, marital status, sex, and national origin.
There are also rules by HOEPA or the Home Ownership and Equity Protection Act that protects borrowers from high fees and rates. If you are getting a loan with excessive rates or fees these are required to have additional disclosures and there are restrictions to how high the fees and rates can go.
Choose The Right Lender
As I have mentioned, you can never be too careful when dealing with lenders and falling for some deceptive practices that can land you in a lot of trouble down the road. Make sure you get the truth when dealing with an honest resource like Loan Consultants Please call me anytime you need me at 888-900-1020 and I will be more than happy to help you any way that I can.