When reputable lenders provide mortgages and other loans to borrowers with uncertain incomes or blemished credit histories, they charge higher-than-average interest rates. This compensates them for the increased risk that these “sub prime” loans won’t be repaid.
Predatory lenders steer customers who may qualify for lower-rate prime loans to more expensive sub prime loans. Their favorite targets are elderly people and unsophisticated homeowners.
Some of their abusive tactics are…
EQUITY STRIPPING: The lender makes a loan that it knows you can’t repay. The lender ultimately may foreclose on the assets or property and resell it at a profit.
FLIPPING: You are lured into refinancing over and over again or taking home-equity loans to cover short-term expenses, such as medical bills. The promised monthly payments look cheaper, but the total cost over time may actually be higher. Each time you refinance, the lender collects points and other fees.
INSURANCE “PACKAGING:” The lender layers life, disability and/or credit insurance onto the loan agreement without disclosing that the insurance is not required. Premiums increase the balance owed.
WARNING SIGNS
When dealing with a lender, beware of these red flags…
Coercion to sign anything with out adequate time to review it or show it to an attorney. Even if you do sign, federal law generally allows you three days to change your mind if you use your principal residence as collateral.
Lenders and home-improvement contractors who canvass your neighborhood door-to-door.
Loan documents that don’t match the agreed-upon terms or include blank spaces to be filled in later.
Balloon payments. Certain loans may be structured to allow for relatively low monthly payments for a period of five to 10 years, followed by one large payment to satisfy the remainder. If the balloon payment comes die in less than five years, the loan may be illegal.
Prepayment penalties. If you pay off the loan early-you sell your home, refinance or accelerate principal payments-you may be charged a lump sum penalty or higher monthly fees.
Increased interest rate in case of late payment. If you miss a payment or pay late even once, your interest rate can go up significantly for the rest of the loan term. This practice is especially common among predatory lenders.
SELF-DEFENSE
Shop around. Ask several types of lenders to provide a written “good-faith estimate” listing all charges. Compare Annual Percentage Rates (APRs), which factor in points, fees and length of the loan.
Get references for the lender or broker. Talk to People who have previously used a lender or a broker.
Check to see if you qualify for federal and state programs. Government agencies have programs to help borrowers secure affordable home loans, Examples…
Fannie Mae, www.fanniemae.com
Us Department of Housing and Urban Development (HUD), www.hud.gov
IF YOU OR A FRIEND ARE IN THE MARKET TO BUT OR REFINANCE REAL ESTATE CALL US TO BE YOU CLOSING AGENT AND TO REVIEW YOUR MORTGAGE CHIOCES. WE PRACTICE MORTGAGE LAW AND CAN ASSIST YOU IN MAKING THE RIGHT MORTGAGE CHOICE FOR YOUR NEEDS.
