Preditory Lending - What is it?

Predatory lending is a term that describes lending practices that cause harm to a Homebuyer or Borrower.  We are hearing the term more and more. One by one State regulatory agencies are passing “predatory lending” Laws. Often borrowers are deceived into accepting unfair loan terms, usually through aggressive sales tactics and or because of their lack of understanding of terms and involvement in complicated transactions. Information data suggests predatory lending is concentrated in poor and minority communities, where better loans are not readily available. However, it can happen anywhere and to anyone, regardless of economic status, education, etc.  The laws that govern Real Estate Sales and Mortgage Lending are many.  Most clients rely on the professionals to represent them to know the law, and guide them into making sound decisions.  Sometimes this advice is not honestly given thru lack of knowledge or principles.  Whichever applies.

Signals of predatory lending practices include, but are not limited to:

• Aggressive and deceptive marketing
• Making loans without ample consideration to the borrower's ability to pay
• Financing excessive fees into loans
• Charging higher interest rates than a borrower's credit allows
• Home improvement scams
• Charging Excessive Fees
• Abusive Prepayment Penalties (longer terms, penalties applied to loans that typically do not have them, higher than usual fees, etc)
• Kickbacks (payment for referrals that the law does not allow, paying excessive fees for services beyond what is customary)
• Loan Flipping (refinancing over and over and or when it does not benefit the borrower)
• Steering & Targeting (Steering into a loan with higher fees and rates than the borrower can qualify for)
• Good faith estimates that do not list fees at prudent ‘worst case’ scenarios

We see this a lot!  It makes it hard for the honest and professional lender to compete when presenting a buyer with a good faith estimate on closing costs.  It is not uncommon to see a lender “accidentally on purpose” leave fees out, under quote costs, etc.  This is one of the reasons there are minimum education requirements for loan originators accross the Nation.

Things to think about before buying a home:

• Before you buy a home, attend a homeownership education course.
• Interview several real estate professionals (agents), and ask for and check references before you select one to help you buy or sell a home.
• Get information about the prices of other homes in the neighborhood. Don't be fooled into paying too much.
• Ask for a copy of your credit scores.  Legally you are to receive this information.  Credit Scores are one of the big considerations in qualifying for a loan.
• Hire a properly qualified and licensed home inspector to carefully inspect the property before you are obligated to buy. Determine whether you or the seller is going to be responsible for paying for the repairs. If you have to pay for the repairs, determine whether or not you can afford to make them.
• Shop for a lender and compare costs. Be suspicious if anyone tries to steer you to just one lender.
• Do NOT let anyone persuade you to make a false statement on your loan application, such as overstating your income, the source of your down payment, failing to disclose the nature and amount of your debts, or even how long you have been employed. When you apply for a mortgage loan, every piece of information that you submit must be accurate and complete. Lying on a mortgage application is fraud and may result in criminal penalties.
• Do NOT let anyone convince you to borrow more money than you know you can afford to repay. If you get behind on your payments, you risk losing your house and all of the money you put into your property.
• Never sign a blank document or a document containing blanks. If information is inserted by someone else after you have signed, you may still be bound to the terms of the contract. Insert "N/A" (i.e., not applicable) or cross through any blanks.
• Read everything carefully and ask questions. Do not sign anything that you don't understand.