What are the signs of predatory lending?
Prepayment penalties are a common feature of subprime loans. Unlike conventional loans, less than 5% of which carry a prepayment penalty of any kind, bad credit loans do have very high rates and normally are equipped with prepayment penalties for the next several years after signing the loan agreement. Exorbitant broker/lender/origination fees are a common sign of predatory lending. With proper loans, those fees can amount to 2-3% of the loan amount. With predatory loans they can amount to 6% and higher; some fees will be hidden up until closing, or made to appear smaller, and additional junk fees can show up at the last moment. Yield spread premiums (YSPs) are cash paid to the broker for making the borrower accept higher rate than what the lender advertised. Equity stripping through unnecessary refinancing allows lenders to cash huge closing costs every time a refinance takes place, while borrowers are stripped of equity. At the last refinance, the borrower may end up owing 2-3 times
