real estate law center: what is predatory lending?

Real Estate Law Center 877-694-3313 www.lenderlawlitigation.com

• What is Predatory Mortgage Lending?

What is Predatory Lending?

• Real Estate Law Center Reviews some tips and solutions

• Predatory mortgage lending:– “Imposing unfair and abusive loan terms on

borrowers.“• According to the office of inspector general

of the FDIC

• But what does predatory lending look like in the real world?

• There are many lending practices which are abusive and have been labeled as "predatory lending."

• Here are 9 signs of predatory mortgage lending practices:

• Brokers That Charge Higher Interest Rates– Charging higher interest rates can be a

predatory lending practice.

– Simply put: A broker can make more money if they increase the interest rate beyond the mortgage lender’s real interest rate charge.

– To combat this, a good question to ask a broker is will they be paid a “yield-spread premium,” or basically a financial reward lenders pay for an inflated interest rate.

• Unnecessarily Large Fees– Look out for large fees—especially when

there is no need for them.

– The lender charges “points” or a small percentage of the loan as a fee.

– Generally these range from three points or 3% of the loan amount or less, including necessities such as appraisal and title insurance.

– Be sure to get your credit score before hand and find out what other lenders charge in your area for comparisons.

• Prepayment Penalty– Requiring a fee or paying a penalty for paying

the loan off early could be a sign of predatory mortgage lending practices.

– This stipulates that the borrower agrees to pay a large fee before refinancing.

– Note that the penalty period can last several years and this can cost thousands of dollars or more.

• Ads Saying Bad Credit is Unimportant– Avoid lenders or companies who say that bad

credit unimportant in their ads. – Also be especially wary of lenders or brokers

who make contact directly, or those who try to rush a decisions or requires immediate responses.

• Targeting Minority Groups– Also unfortunately, predatory lenders

sometimes target older victims such as senior citizens or minorities in order to force unnecessarily expensive loans.

• Balloon Adjustable Interest Rates– Adjustable rate loans that can rise

significantly should be avoided. – Usually, a predatory loan balloons or adjusts

one way—higher. – Be sure to understand exactly all the options,

including what could happen in the “worst-case scenario” for any future payments.

– And don’t count on a future refinance to rescue you from an unaffordable loan.

• Resolving Problems with Future Refinancing– Beware of the promise by a lender to correct a

bad loan or deal later during a another refinancing down the road.

– If a loan is not good now, just hold off until later.

– Refinancing frequently can be a big financial drain too, and results in additional fees.

• Not Including Insurance, Taxes– Confirm that monthly mortgage payments

include additional costs, such as property taxes and insurance.

– Also be sure that the lender has created an escrow account for these costs.

– An unscrupulous lender can make mortgage payments seem artificially low by not including all extra required costs.

• Real Estate Law Center

real estate law center: what is predatory lending?

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