Predatory lending means imposing unfair and abusive loan terms on borrowers, often through aggressive sales tactics, taking advantage of borrowers' lack of understanding of extremely complicated transactions, and outright deception. Predatory loans turn the dream of homeownership into a nightmare, in the worst instances ending in foreclosure.
Richardson, Patrick, Westbrook & Brickman is fighting to stop these abuses through legislative action, putting pressure on particular offenders, and education and outreach.
The list below includes Five Common Predatory Lending Practices. Share this list with friends, family, and clients in order to protect those you work with and care for.
- High Fees: Ethical brokers and lenders charge reasonable fees for their services. Unethical ones charge more than what's reasonable. On a purchase loan or refinance loan, borrowers should avoid paying fees exceeding one percent (not including any discount points) of the loan to the broker and/or lender.
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Watch for Blank Pages: Never sign any blank pages or forms without numbers filled in. The complexity of mortgage loans and the number of unethical lenders can be daunting. If you're uncomfortable or unsure of some issues, always consult an attorney to review any papers you're asked to sign.
Read every word of every loan document — it can be alarming as to what lurks in the fine print that could hurt you later. At the very least, pay the closest attention to four things:
- Truth-in-lending statement
- Good-faith estimate of closing costs
- HUD settlement sheet of closing costs
- Mortgage note
- Credit Insurance/Other Fees: Just as you are ready to sign, lenders can surprise borrowers with additional fees. They count on the naivety or trust of the borrower to understand that credit insurance is different from private mortgage insurance. Unethical lenders may tell customers that the insurance comes with the loan (implying that it is free) or try to scare borrowers by suggesting that refusing to sign will delay and even jeopardize the loan.
- Balloon Payments: Lenders may offer to help refinance a borrower's home, consolidate bills or avoid foreclosure by giving new loans with an even lower monthly rate. But many of these deals require a large lump-sum payoff, within a few years.
- Loan Flipping: When a customer decides to refinance in order to get extra cash. After the borrowers has made a few payments, the lender calls to offer a bigger loan to pay for other items (e.g. a vacation). The borrowers then agrees, never knowing that that each time the original loan is refinanced, the borrower must pay high points, fees and a higher interest rate. And, if the loan had a prepayment penalty, the borrower has to pay that also.
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contact us with any questions or if you'd like to explore your legal rights.
