Predatory Lending

Posted on September 22nd, 2008 by saman

It is important for homeowners and everyone to learn as much as they can about predatory lending practices. It is important to lean about predatory lending because the dishonest practices of bankers, lenders, and broker and their sales teas have brought about worldwide financial ruin in the past year. As home values drop, and the cost of energy goes up, many consumers will not be able to pay excessive mortgage fees. The fall of the sub-prime mortgage is directly related to predatory lending.

There are a few types of predatory lending. There are pay option loans, stated income loans, bait and switch and elder abuse.

Mortgage brokers and lenders were being dishonest when they offered teaser loan rates and “pay option” loans. These types of loans were dishonest and borrowers were not told what they were really getting into with these types of loans. Professionals in real estate are required by law to act in the best interest of the borrowers. When brokers and lenders did not do this, this constituted Predatory Lending.

Predatory lending also applies to when the creditor or broker puts a borrower in a loan that they realize they will probably not be able to pay back. The Truth in Lending Act, along with the other laws requires that all creditors disclose particular terms of the loans to the potential borrower. When these terms are disclosed inaccurately or not disclosed at all, the violation of state and federal laws provide serious financial penalties that the mortgage holders will have to pay.

Bait and switch is the classic form of predatory lending. A loan officer may start off pitching you a great rate. The loan process goes quickly and when the time comes for you to sign the loan papers at the closing table, the cost of the loan have increased tremendously and the promised “great rate” has basically disappeared. The borrower may wonder what has happened but by the time you are at the closing table, you are too late. You may be faced with serious penalties if the transaction is delayed. If you are already committed to a refinancing loan, you may need to cash out so you cannot back out of the deal.

Elder abuse is something that occurs when a retired person has a lot of equity in their home. The amount of equity makes them the main targets for crooked and greedy creditors. Some mortgage sellers may cold call a senior homeowner and try to convince them to take out a loan they cannot afford and do not need. These loans can get the seller a very large commission. State and federal laws prevent the mortgage industry from giving different loan terms to people when it comes to sex, race, ethnicity or other classes of protected people. If this type of abuse in lending is found, the mortgage holder may be cause for a lawsuit because civil rights have been violated. Equity theft or equity skimming refers to when the same creditor refinances the same home with the same homeowner numerous times and uses the equity in the home.

If you find you have been victims of predatory lending practices there are a number of organizations and consumer groups that can help you avoid a foreclosed home.