What is Predatory Lending?
“Predatory lending” is a term for a variety of lending practices that strip you of wealth and income. Predatory loans typically are much more expensive than justified by the risk associated with the loan. Characteristics of predatory loans may include enormous and/or hidden fees, charges for unnecessary products, high interest rates, terms designed to trap borrowers in debt, fraud, and refinances that do not provide you any benefit. Below, read more typical and unfair lending practices.
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 downpayments 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
Predatory lenders do just what the name implies. They exploit borrowers, especially vulnerable groups such as the elderly, minorities, and people with poor credit histories, by charging high interest and excessive fees. Predatory lenders take thousands of dollars from borrowers by charging excessive amounts. Many use deceptive sales practices to trick people into getting loans that they cannot afford to repay. The result can be foreclosure and homelessness. Predatory lending has recently become an increasing problem nationwide. Thus, the federal government has responded with increased regulatory enforcement and educational campaigns. Predatory lenders include both mortgage lenders that prey on homeowners and non-mortgage consumer lenders that offer both secured and unsecured loans. Author: Barbara O’Neill, Ph.D.
Although predatory lending is not defined by federal law and individual states define abusive lending differently, these practices usually involve stripping equity away from a homeowner. Predatory or abusive lending practices can include: • Repeatedly refinancing a loan within a short period of time and charging high points and fees with each refinance. • “Packing” a loan with single premium credit insurance products, such as credit life insurance, and not adequately disclosing the inclusion, cost or any additional fees associated with the insurance. • Charging excessive rates and fees to a borrower who qualifies for lower rates and/or fees offered by the lender. How Can I Avoid These Practices?
Predatory Lending applies to any and all aspects of the mortgage industry and refers to the practice whereby a lender gives a borrower a loan that the borrower could never really afford, was not fully apprised of all the costs, fees and ramifications of the loan program and likely to fall into default and subsequent foreclosure. In short predatory lending refers to loans being given to people who should not be getting them. On both federal and state levels, laws require that creditors disclose all terms and costs of loans to borrowers, and when those terms are not disclosed or are inaccurately disclosed these laws provide severe monetary penalties against these creditors. Predatory lending tactics include the classic bait and switch (you’re sold on the phone by a smooth talking loan officer who pitches you a great rate. Things move quickly and when you go to sign your loan documents with a notary, that great rate isn’t so great anymore), undisclosed fees, or simply providing high cost
