Predatory Lending

Finding the best loan is no different than making any other purchase. Be a smart shopper! Talk with a number of different lenders. Compare their offers. Ask questions and don't let anyone pressure you into making a deal that you don't feel comfortable with. If you don't agree with the terms of the offer you always have the right to walk away. Ask questions until you understand the loan terms - even if you feel embarrassed for not knowing the answer.

TIP:	In a refinance loan or second mortgage, you have additional rights known as Rescission Rights. The lender must allow you three days after the closing of your loan to change your mind. Use that three days wisely. If the loan is not for you, cancel it.

Common Predatory Lending Practices

Equity Stripping: The lender makes a loan based upon the equity in your home, whether or not you can make the payments. If you can't make payments, you could lose your home through foreclosure.

Bait-and-switch schemes: The lender may promise one type of loan, interest rate, or costs, but switch you to something different at closing. Sometimes a higher (and unaffordable) interest rate doesn’t kick in until months after you've begun to pay on your loan. Scrutinize your documents closely and make sure the loan you sign is the loan you agreed to.

Loan Flipping: A lender refinances your loan more than once with a new long-term, high cost loan. Each time the lender "flips" the existing loan, you must pay points and assorted fees.

Packing: You receive a loan that contains charges for services you did not request or need. “Packing” most often involves making the borrower believe that credit insurance or some other costly product must be purchased and financed into the loan in order to qualify. Sometimes the costs of these services may simply be hidden altogether.

Hidden Balloon Payments: You believe that you've applied for a low rate loan requiring low monthly payments only to learn at closing that it’s a short term loan that you will have to refinance within a few years.

Hiding or Lying About Pre-Payment Penalties: You’re led to believe that there will be no penalty if you decide to pay your loan off early.

Home Improvement Scams: A contractor talks you into costly or unnecessary repairs, steers you to a high-cost mortgage lender to finance the job, and arranges for the loan proceeds to be sent directly to the contractor. All too often, the contractor performs shoddy or incomplete work, and the homeowner is stuck paying off a long-term loan where the house is at risk.

Monthly Payment Scams: Don’t be tricked by deceptive payment comparisons. Be particularly aware when comparing the new monthly payment to your existing monthly payment. Does the new payment contain amounts for taxes and insurance? If not, it may not be a better loan. Ask that the full payment amount be clearly expressed in writing.

Piggy Back Second Loans: Be very aware of additional loans offered or "snuck" into your loan transaction at the time of closing. If you did not ask for a second mortgage, home equity line of credit or credit card secured by your home, one should not be included in your closing papers.

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