Predatory lenders, appraisers, mortgage brokers and home improvement contractors can cause people to lose their homes and their investment because of unscrupulous practices. The following are some of the characteristics of predatory lending.
- High interest rate or rate is not disclosed at all.
- Credit insurance is required with the whole premium paid in advance. Credit insurance will repay the debt if you die or become disabled. Credit insurance is optional and will not affect your loan decision if you decline to buy it. It can, however, add considerable cost to the loan transaction. You should carefully decide whether you are going to purchase credit insurance.
- There are high pre-payment penalties. The lender charges fees if you want to make an extra payment or refinance your loan. This prevents borrowers from paying off their mortgage early by increasing the amount the lender collects. These fees can be hidden, so be sure to ask your mortgage lender.
- Non-amortizing loans. Amortization allows you to pay off the interest during the first few years of the loan, so in the final years you are paying primarily the principal.
- The lender uses aggressive sales tactics. Predatory lenders may call you or come to your house. They may tell you they can get you a loan regardless of your credit history.
- There are high fees associated with the loan. The borrower should not be charged fees greater than 3-5% of the loan amount. Make sure the fees are not for unnecessary or nonexistent services or products.
- The lender encourages you to lie about information on your loan application.
- The lender asks you to leave signature lines or any other important line item of any form blank. The lender alters information you entered on the loan application.
- There is not a copy of the Good Faith Estimate, HUD-1 Settlement Statement, Special Information Booklet or Truth in Lending statement in the loan file.
- You have refinanced your loan several times and increased your monthly payment or the total amount you owe on your home. This strips the equity you have in your home.
- The interest rate calculation will change and require that you to pay daily interest if your payments are late.
- The loan amount is higher than the value of the home.
- There are unexpected costs at settlement.
- The monthly payments are higher at closing than discussed earlier.
- There is a balloon payment that will be higher than you can afford.
- The property is being sold for more than it is worth. Predatory lenders often work with appraisers who will appraise the property for more than it is worth.
- The lender loans the borrower more money than they can afford to repay.
- You were steered toward higher rate loans in spite of qualifying for market rate products.
- The lender tells you the deal is only good if you sign immediately.
