Fair Lending Rights
Unfair mortgage lending practices are still common. Many unfair lending practices have become known as predatory lending.
Predatory lending is a lending practice in which a lender gets much more out of the loan than the borrower does. Mortgage loans are considered to be predatory when the terms and conditions of the loan are unsuitable for the borrower’s circumstances.
You may be in a predatory loan and not know it until it is too late. A predatory loan can ruin your credit and lead to foreclosure. Some predatory lenders target the elderly, people of color, and those with low incomes or damaged credit.
Predatory lenders may make it easier to get a home purchase loan, a home equity loan, or a loan to refinance your existing mortgage, but exercise caution because the cost of these loans could be the loss of your home.
PREDATORY LOANS OFTEN INCLUDE:
High interest rates and/or high fees
Predatory lenders will often charge extremely high interest rates and fees. This increases lenders' profit unfairly and makes your loan needlessly expensive. Some predatory lenders charge excessively high fees, charging more than once for the same service calling them something that sounds different, and then spreading payment for the fees out into the monthly repayments.
Many predatory lenders initially offer borrowers lower monthly payments, a good interest rate and a loan that meets all of their needs. But borrowers may then find that loan terms have been changed once they get to the closing. They may then be pressured to sign the paperwork, even when they feel uncomfortable about doing so.
Predatory loans may also include:
- Adjustable rate mortgages (ARMs) with low introductory rates that adjust into much higher rates, translating into increases of hundreds of dollars In the monthly payments.
- Inflated appraisal costs: borrowers are charged a fee for a full appraisal, which should include a detailed report, when only a drive-by appraisal was done.
- Deceptive terms and conditions.
- Repeated refinancing of the loan, resulting in higher borrower costs.
- Concentrated marketing in minority and poor communities.
- Bogus broker fees: charging the borrower broker fees when the borrower never met with or knew of the broker.
- Requiring credit life insurance: charging exorbitant premiums with little or no
benefit from the insurance to the borrower. The lender usually receives a large
commission from the insurance company.
- Mandatory arbitration clauses: limiting the borrower to a dispute resolution method perceived to be more favorable to the lender than the court system would be.
- Negative amortization: a loan in which, after making months or even years of payments, the borrower owes more than the amount originally borrowed. Negative amortization is often associated with interest-only loans, or option ARMs (an adjustable mortgage that gives you the option to pay only interest or to pay on principal as well).
- Balloon payments: structuring the loan so that at the end of the loan period the borrower still owes most of the principal borrowed, and is required to pay it back all at once, or refinance.
Foreclosure Rescue Scams
Some homeowners facing foreclosure turn to people who promise to provide assistance, but these people frequently do not deliver on that promise, despite charging hefty fees. The scam artists use messages like: 'We guarantee we can save your home, Free consultation or 'We have special relationships within many banks that can speed up case approvals. Once they have your attention, scam artists use a variety of tactics to get your money.
If you’re looking for foreclosure prevention help, avoid any business that:
- Collects a fee before providing you with any services. It is illegal to do this.
- Guarantees to stop the foreclosure process no matter what your circumstances.
- Instructs you to not contact your lender, lawyer, or credit or housing counselor.
- Tells you to make your mortgage payments directly to it, rather than your lender.
- Accepts payment only by cashier’s check or wire transfer.
- Encourages you to lease your home so you can buy it back over time.
- Offers to buy your house, or tells you to transfer your property deed or title to it.
- Offers to fill out paperwork for you.
- Pressures you to sign paperwork you haven’t had a chance to read thoroughly or that you don’t understand.