Predatory Lending

Over the last several years, our nation has made enormous progress in expanding access to capital for previously under served borrowers. Despite this progress, however, too many families are suffering today because of a growing incidence of abusive practices in a segment of the mortgage lending market. Predatory mortgage lending practices strip borrowers of home equity and threaten families with foreclosure, destabilizing the very communities that are beginning to enjoy the fruits of our nation’s economic success.

What is Predatory Lending?

In communities across America, people are losing their homes and their investments because of predatory lenders, appraisers, mortgage brokers and home improvement contractors who:

• Sell properties for much more than they are worth using false appraisals.
• Encourage borrowers to lie about their income, expenses, or cash available for down payments in order to get a loan.
• Knowingly lend more money than a borrower can afford to repay.
• Charge high interest rates to borrowers based on their race or national origin and not on their credit history.
• Charge fees for unnecessary or nonexistent products and services.
• Pressure borrowers to accept higher-risk loans such as balloon loans, interest only payments, and steep pre-payment penalties.
• Target vulnerable borrowers to cash-out refinances offers when they know borrowers are in need of cash due to medical, unemployment or debt problems.
• "Strip" homeowners' equity from their homes by convincing them to refinance again and again when there is no benefit to the borrower.
• Use high pressure sales tactics to sell home improvements and then finance them at high interest rates.

Other Predatory Lending Tactics include:

While there are varied types of violations of the Truth in Lending Act, common discrepancies found in mortgages are

• Rate calculations on adjustable rate mortgages that are incorrect.
• Rate adjustment disclosures that are incorrect.
• Failure to disclose actual interest amounts and payments

Under the Truth in Lending Act, the lender must disclose the annual percentage rate (APR) to the borrower. The APR shows the cost of the credit to the consumer. In addition to interest, the cost of financing includes origination fees and discount points. According to the Truth-in-Lending Act, a finance charge consists of all fees paid either directly or indirectly by the borrower, as part of the extension of the credit. While there are some exceptions, most fees paid to a lender are considered finance charges.

Yield Spread Premiums

A predatory lending practice where brokers arrange a loan with an inflated interest rate that is more than the lender would charge, the lender often pays the broker a -- a kickback for making the loan more costly to the borrower.

Loan Flipping

Flipping is a predatory lending practice where a lender refinances a loan to generate fee income without providing any real benefit to the borrower. This practice can eat up the borrower's equity and raise monthly payments -- sometimes on homes that had previously been debt-free.

Unnecessary Products

Borrowers may pay inflated fees when lenders sell and finance unnecessary insurance or other products with the loan. These predatory lending tactics are often expensive and borrowers are not told that they have other, more economical options.

Mandatory Arbitration

Some loan contracts require "mandatory arbitration," meaning that the borrowers are not allowed to seek legal remedies for predatory lending and other legal issues related to their mortgage in a court if they find that their home is threatened by loans with illegal or abusive terms. Mandatory arbitration makes it much less likely that borrowers will receive fair and appropriate remedies in cases of wrongdoing.

Steering

Predatory lenders may steer borrowers toward subprime mortgages, even when the borrowers may qualify for a mainstream loan. Aggressive sales tactics and sometimes outright fraud are used to influence borrowers into these loan products.

How do you fight predatory lending? We can help!

A foreclosure could be the result of predatory lending. We can help you fight foreclosure with information that will show you the defenses to foreclosure and help you determine if you have been a victim of predatory lending. Our materials include information on the laws and regulations that lenders are required to follow and will give you information on auditing your mortgage to determine if you have been a victim of a predatory lender.

What Tactics Do Predators Use?

• A lender or investor tells you that they are your only chance of getting a loan or owning a home. You should be able to take your time to shop around and compare prices and houses.
• The house you are buying costs a lot more than other homes in the neighborhood, but isn't any bigger or better.
• You are asked to sign a sales contract or loan documents that are blank or that contain information which is not true.
• You are told that the Federal Housing Administration insurance protects you against property defects or loan fraud - it does not.
• The cost or loan terms at closing are not what you agreed to.
• You are told that refinancing can solve your credit or money problems.
• You are told that you can only get a good deal on a home improvement if you finance it with a particular lender.

The Department of Housing and Urban Development has these tips “On Being A Smart Consumer”

1. Before you buy a home, attend a homeownership education course offered by the U.S. Department of Housing and Urban Development (HUD)-approved, non-profit counseling agencies.

2. Interview several real estate professionals (agents), and ask for and check references before you select one to help you buy or sell a home.

3. Get information about the prices of other homes in the neighborhood. Don't be fooled into paying too much.

4. 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.

5. Shop for a lender and compare costs. Be suspicious if anyone tries to steer you to just one lender.

6. 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.

7. 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.

8. 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.

9. Read everything carefully and ask questions. Do not sign anything that you don't understand. Before signing, have your contract and loan agreement reviewed by an attorney skilled in real estate law, consult with a trusted real estate professional or ask for help from a housing counselor with a HUD-approved agency. If you cannot afford an attorney, take your documents to the HUD-approved housing counseling agency near you to find out if they will review the documents or can refer you to an attorney who will help you for free or at low cost.

10. Be suspicious when the cost of a home improvement goes up if you don't accept the contractor's financing.

11. Be honest about your intention to occupy the house. Stating that you plan to live there when, in fact, you are not (because you intend to rent the house to someone else or fix it up and resell it) violates federal law and is a crime.

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