Consumer Beware: Five Signs of a Predatory Loan
Categories: Mortgage, Home Loan, Predatory Lending
How-to identify a legitimate mortgage offer from a predatory tactic
Not all mortgage loans are legitimate financing opportunities. As the real estate market rebounds to normalcy, both homeowners and home buyers may seek new financing opportunities. Certain home loan programs designed for the consumer with less than pristine credit otherwise dubbed as sub-prime or non-conventional loans are downright predatory. For the prospective new homebuyer or homeowner who needs to use their equity, there are five ways to identify an illicit loan from a legitimate loan approval.
Bait-and-switch tactics:
Generally, a bait and switch scheme occurs when a borrower is offered a specific mortgage program or interest rate and then the terms of the loan are changed without good cause. Without a valid reason, the lender offers the consumer a different loan program or interest that was not originally agreed upon. The Good Faith Estimate is designed to eliminate these bait and switch tactics.
Loan packing
Loan packing is when a lender adds extraneous charges into the loan contract. Generally, the charges are overpriced fees for superfluous or unnecessary items. These extra items may accrue to the thousands. Another loan pack tactic entails a lender adding on extra insurance or other futile/phony services.
Mortgage borrower tip: Ask the mortgage broker or loan officer to define each fee’s purpose. Consult an attorney to review the terms of any first loan purchase. For homeowners acquiring a loan to obtain a second mortgage or home equity line of credit, the Truth in Lending Act provides homeowners the right to rescind a loan within three business days subsequent to the signing of the financial agreement. If the homeowner/borrower is not given notice of the right to cancel the loan (rescind), the homeowner is entitled to an extended right to rescind the loan for up to three years.
Equity stripping
Equity stripping transpires when the homeowner is encouraged to take an exorbitant amount of equity from their home to acquire additional cash, finance home repairs or consolidate debt. The end result drastically reduces the equity and heightens the risk of the borrower being unable to make the high payments – allowing the lender to foreclose the property. (Link)
Loan flipping
Only ill-repute lenders encourage home owners to refinance their home repetitively. The downside of loan flipping tactic increases debt significantly because each transaction tacks on another fee for processing the loan. Not to mention, the consumer may remit a higher interest rate than the amount of the original loan or value of the property. These higher payments coupled with extra debt places the homeowner’s property at risk of foreclosure.
Home improvement scams
Home improvement scams involve unnecessary expensive repairs financed via high-cost mortgage companies. The scam occurs when a contractor offers to make repairs and make financing available through an affiliated lender. In the interim, the loan proceeds are directed to the contractor. Prevalently,
the home improvement repair is of poor quality – leaving the homeowner with an exorbitant long-term loan to pay off.
Mortgage Tip:
Regardless of how much you require a home loan, it is best to determine the legitimacy of a mortgage company by checking with your state’s attorney general’s office, the Better Business Bureau and the Federal Deposit Insurance Corporation (FDIC) http://www.fdic.gov/. Generally, predatory lending reports are filed through the attorney general’s offices.
The Better Business Bureau (BB
http://bbb.org/ maintains a record of charges filed against ill-repute lending agencies. The FDIC is another key place to verify the legitimacy of a mortgage company to review bank failures. The FDIC is an independent agency established by Congress in 1933 to monitor banks, assists in maintaining stable financial systems and insure deposits up to $100,000.
Read more on foreclosures.
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