Mortgage Foreclosure & Refinance Resource

When the homeowner does NOT benefit in a house buying transaction turns a legal mortgage into a predatory lending practice is immoral and often illegal. There are many resources where one can report mortgage fraud and predatory lending. In many cases only a fine line divides actual fraud from an ethical and legal transaction.

Predatory lending practices include:

• Selling properties for much more than they are worth using false appraisals.
• Encouraging 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.
  • Points and fees are costs not directly reflected in interest rates. Because these costs can be financed, they are easy to disguise or downplay. On competitive loans, fees below 1% of the loan amount are typical. On predatory loans, fees totaling more than 5% of the loan amount are common.
  • Predators often add insurance and other unnecessary products to the loan amount. They insist on or intimidate the borrower into buying can include regular mortgage insurance, fire and hazard insurance, life insurance, disability insurance, homeowner’s insurance, and health insurance. The insurance can be extended to include all family members, not just the borrowers themselves. The premium for these items is also added onto the loan amount where the cost is not easily spotted by the borrower.
• Pressure borrowers to accept higher-risk loans such as balloon loans, interest only payments, and steep pre-payment penalties.
  • Borrowers with higher-interest subprime loans have a strong incentive to refinance as soon as their credit improves. However, up to 80% of all subprime mortgages carry a prepayment penalty — a fee for paying off a loan early. An abusive prepayment penalty typically is effective more than three years and/or costs more than six months’ interest.  Generally, only about 2% of home loans carry prepayment penalties of any length.  Homeowners are trapped into keeping the original, high-interest mortgage. This is also another case where the lender gives a kickback to the mortgage broker for helping to include the high prepayment penalty in the mortgage. In the future, when the homeowner has to pay the prepayment penalty, the mortgage broker pockets more money.
• 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.

To protect your self from predatory lenders

• 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. Housing counselors working at HUD-approved agencies can help you be a smart consumer. To find a counselor near you, call (800) 569-4287 or go to HUD’s housing counselors list online.
• 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.
• Shop for a lender and compare costs. Be suspicious if anyone tries to steer you to just one lender.
• Do NOT let anyone persuade you to make a false statement on your loan application, such as overstating your income, the source of your downpayment, failing to disclose the nature and amount of your debts, or even how long you have been employed. Lying on a mortgage application is fraud and may result in criminal penalties.
• 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.
• 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.
• 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.

What are some signs that I’m dealing with a Predator?

• A lender or investor tells you that they are your only chance of getting a mortgage.
• 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.

Predatory Lending Laws

Predatory lending laws are slowly being integrated into the legal systems of the federal government and the individual states. More than 35 states have already placed a legal limit on the maximum prepayment penalty that a homeowner should have to pay, and over half of the states have taken steps to limit predatory lending practices during the last five years.