Predatory Lending

Every year, misinformed homebuyers become victims of predatory lending, also known as loan fraud.  The following information may help you avoid this potentially devastating experience.

What is Predatory Lending?
Predatory lenders, appraisers, mortgage brokers and home improvement contrators 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 refinance 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
> Use high pressure sales tactics to sell home improvements and then finance them at a high interest rate

What Tactics Do Predators Use?
> A lender or investor tells you that they are your only chance of getting a loan or owning a home.  Take your time to shop around and compare prices and houses.
> 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 agree 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.

Although these are the most common traits and tactics used by predatory lenders, this is not an exhaustive list.  If something doesn't sound or feel right to you, walk away and investigate further.  If the offer or information is legitimate, questions should be welcomed and answered to your satisfaction.