Predatory Loan4a

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A Presentation on How to Protect Yourself from a Predatory Loan

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Predatory Loan4a

  1. 1. The Housing Advocates, Inc.’s Home Ownership Assistance Program Sponsored by: Mayor Jane Campbell And Cleveland City Council Copyright © 2003 The Housing Advocates, Inc. All rights reserved.
  2. 2. QUICK QUIZ ANSWERS <ul><li>1) FALSE. You generally have three business days to cancel a refinance, a second mortgage and most home equity loans. </li></ul><ul><li>2) FALSE. Under the Truth in Lending Act, Saturdays are considered </li></ul><ul><li>“ business days”. </li></ul><ul><li>3) FALSE. When you refinance your home, you are taking out a new </li></ul><ul><li>loan. </li></ul><ul><li>4) DEPENDS. I think it is a bad idea to add unsecured debt (credit cards) </li></ul><ul><li>to secure debt (mortgage). </li></ul><ul><li>5) FALSE. A mortgage lender cannot require you to get life insurance </li></ul><ul><li>before giving me a loan? </li></ul>
  3. 3. <ul><li>FALSE . A “banc” is typically less regulated than a “bank”. That </li></ul><ul><li>is why some mortgage companies identify themselves as a </li></ul><ul><li>“ banc” instead of a “bank”. </li></ul><ul><li>FALSE . In addition to targeting low income communities, </li></ul><ul><li>predatory lenders frequently target moderate income </li></ul><ul><li>communities and sometimes target high income communities. </li></ul><ul><li>FALSE . If your APR exceeds 14.5% you do not automatically </li></ul><ul><li>have a predatory loan. However, you may have a high interest </li></ul><ul><li>loan which may require the lender to provide you with certain </li></ul><ul><li>disclosures under the Home Ownership Equity Protection Act. </li></ul><ul><li>9) TRUE . In the Cleveland area, most appraisers charge between </li></ul><ul><li>$250 and $350 to conduct an internal and external inspection of </li></ul><ul><li>your home. </li></ul>
  4. 4. <ul><li>10) FALSE. If you get a credit life insurance policy as a part of your home loan, the proceeds from that policy will be paid to the lender if you die and still owe a balance on your loan. </li></ul><ul><li>11) TRUE. Signing a loan document without reading it and understanding it, is the equivalent of signing a blank check. </li></ul><ul><li>12) TRUE. Under the Real Estate Settlement Protection Act (RESPA), a borrower can request to see his or her completed HUD-1 or HUD-1A Settlement Statement the day before closing. </li></ul><ul><li>TRUE. Under the Home Ownership and Equity Protection Act (HOEPA), a lender may be required to consider a borrowers ability to repay a loan. </li></ul>
  5. 5. NEVER, EVER SIGN A LOAN DOCUMENT… BEFORE YOU HAVE READ IT!!!!
  6. 6. <ul><li>BEFORE YOU HAVE READ EVERY PAGE OF EVERY DOCUMENT ( Beware of Riders ) </li></ul><ul><li>WITHOUT UNDERSTANDING WHAT YOU’VE READ!!!! </li></ul>
  7. 7. <ul><li>THAT CONTAINS BLANK SPACES THAT COULD BE FILLED IN BY ANYONE!!! </li></ul><ul><li>UNDER PRESSURE!!! </li></ul>
  8. 8. What is A Predatory Loan?
  9. 9. <ul><li>A loan becomes “predatory” when a lender or broker takes steps to knowingly mislead a borrower (through statements or actions), hide loan terms that are highly unfavorable to the borrower or charge a borrower unreasonable fees and interest. </li></ul><ul><li>Predatory Loans are frequently designed to get the borrower to refinance multiple times or to get the borrower to default. </li></ul>
  10. 10. I Don’t Have A Predatory Loan, So Why Should I Care? <ul><li>If you ever lose your job or source of income, you could become a victim </li></ul><ul><li>• Family and friends could become victims </li></ul><ul><li>• A neighbor’s predatory loan could impact the value of your home </li></ul><ul><li>• You may already be the victim of a predatory lender if you have… </li></ul><ul><li>1 refinanced your home, </li></ul><ul><li>2 taken out a home equity loan, or </li></ul><ul><li>3 signed a contract to finance home </li></ul><ul><li>repairs or improvements … </li></ul><ul><li>and you did not read the fine print or did not understand what you have read. </li></ul>
  11. 11. Things That May Make A Loan Predatory <ul><li>Abnormally High Interest Rates </li></ul><ul><li>Excessive or Unconscionable Fees/Costs (Generally fees should not exceed 1% – 2%) </li></ul><ul><li>Undisclosed or Hidden Fees </li></ul><ul><li>Unnecessary Insurance </li></ul><ul><li>Prepayment Penalties </li></ul><ul><li>Unaffordable Balloon Payments </li></ul><ul><li>Unaffordable Monthly Payments </li></ul><ul><li>“ Flipping” or continual refinancing </li></ul><ul><li>Bait and Switch Tactics </li></ul><ul><li>Pressure Tactics </li></ul><ul><li>Steering Borrowers into Sub-prime Rates When They May Be Eligible for Prime Rates </li></ul><ul><li>Inflating the Value of a Borrower’s Home </li></ul><ul><li>Inflating a Borrowers Income </li></ul><ul><li>Equity Acceleration Programs or Bi-Weekly Payments </li></ul>
  12. 12. Some Important Documents In The Fight Against Predatory Lending <ul><li>Truth-In-Lending </li></ul><ul><li>Disclosure Statements </li></ul>
  13. 14. Some Important Documents In The Fight Against Predatory Lending <ul><li>Truth-In-Lending Itemization Sheet </li></ul>
  14. 16. Some Important Documents In The Fight Against Predatory Lending <ul><li>HUD-1 or HUD-1A Settlement Sheets </li></ul>
  15. 18. Some Important Documents In The Fight Against Predatory Lending <ul><li>Notice of Right to Cancel </li></ul>
  16. 20. Some Important Documents In The Fight Against Predatory Lending <ul><li>Section 32 Disclosure Form </li></ul>
  17. 22. Who Can Become A Victim of A Predatory Lender? Anyone Who Owns A Home
  18. 23. <ul><li>Frequent Targets of Predatory Lenders Include: </li></ul><ul><li>• Senior Citizens </li></ul><ul><li>African-Americans </li></ul><ul><li>• Women Head-of-Households (e.g. divorce, widows or single parents) </li></ul>
  19. 24. <ul><li>Hispanics-Americans </li></ul><ul><li>People who are poor, but have some equity in their home </li></ul><ul><li>People who are desperate to get out of debt </li></ul><ul><li>People who have less than excellent credit </li></ul>
  20. 25. How You May Come To The Attention Of Predatory Lenders
  21. 26. <ul><li>Missed Mortgage Payments </li></ul><ul><li>Outstanding Medical Bills </li></ul><ul><li>Delinquent Property Taxes </li></ul><ul><li>Home Appears To Be In Need Of Repairs </li></ul><ul><li>Housing Court Violations </li></ul>
  22. 27. <ul><li>The Geographic Location of Your Home and Neighborhood </li></ul><ul><li>Responding to Television, Radio and Magazine Ads </li></ul><ul><li>Responding to Mail Solicitations </li></ul><ul><li>A Friendly Contractor Offers To Arrange A Loan That Will Help You Pay For Repairs </li></ul>
  23. 28. Persons Who May Contact You And Offer You A Loan <ul><li>A representative or representatives from a Mortgage Company </li></ul><ul><li>A representative or representatives from a “Banc” </li></ul><ul><li>A mortgage broker </li></ul>
  24. 29. Persons Who May Contact You And Offer You A Loan <ul><li>A person offering to make repairs on your home (i.e., a contractor) NOTE : Beware of contractors who are eager to arrange financing for you. </li></ul><ul><li>A friendly stranger who some how found out about your financial problems. </li></ul><ul><li>A telemarketer offering to lower your monthly payments. </li></ul>
  25. 30. Things To Consider Before You Use Your Home As Collateral For A Loan
  26. 31. Do You Really Need the Loan? <ul><li>Wants v. Needs Analysis </li></ul><ul><li>(E.g., Vacation or New Car </li></ul><ul><li>v. </li></ul><ul><li>Emergency Medical Needs) </li></ul>
  27. 32. Are There Alternatives? <ul><ul><li>_ Charitable Gifts or Donations </li></ul></ul><ul><ul><li>Loans From Friends & Family </li></ul></ul><ul><ul><li>Sell Excess Property (i.e., land, cars, jewelry, etc.) </li></ul></ul><ul><ul><li>Governmental Assistance, Loans, or Grants </li></ul></ul><ul><ul><ul><li>Cuyahoga County’s Home Enhancement Loan Program (H.E.L.P.) </li></ul></ul></ul><ul><ul><ul><li>Local Programs (e.g., City of Cleveland) </li></ul></ul></ul><ul><ul><li>Borrow from 401 (K) </li></ul></ul><ul><ul><li>A part-time or temporary job </li></ul></ul>
  28. 34. If You Are Considering Using Your Home As Collateral For A Loan, Look For The Best Deal. <ul><ul><li>• Rates/APR </li></ul></ul><ul><ul><li>• Low Fees and Low Closing Costs </li></ul></ul><ul><ul><li>• Avoid Unnecessary Insurance </li></ul></ul><ul><ul><li>• Watch Out For Unaffordable Balloon Payments </li></ul></ul>
  29. 35. If You Are Considering Using Your Home As Collateral For A Loan, Look For The Best Deal. <ul><li>Are You Turning Unsecured Debt (e.g., Credit Card Debt) into Secured Debt (e.g., a Mortgage Debt)? </li></ul><ul><li>Can you cancel the loan within 3 business days? </li></ul><ul><li>Can You Afford The Monthly Payments? </li></ul><ul><li>If you can afford the payments, will your payments increase later? </li></ul><ul><ul><li>(e.g., Adjustable or Variable Rate Mortgages) </li></ul></ul>
  30. 36. If You Decide To Use Your Home As Collateral For A Loan • Try Traditional Banks, Credit Unions, etc. • Get Your Credit Score and If Necessary, Seek Credit Counseling • Borrow Only As Much Money As You Need • Demand That Lenders Provide You With All Documents At Least Two Days Before Signing
  31. 37. • Talk To Family And Friends Regarding Their Refinance, Second Mortgage or Home Equity Loan Experiences Before Entering Into A Loan • Get References From The Lender And Call The References • Contact the Better Business Bureau and See If The Lender Has A Satisfactory History With The BBB.
  32. 38. If You Plan On Purchasing A Home, Beware Of “Property Flipping” Scams !!!! <ul><li>On June 24, 1994, Betty Borrower gets a $28,200 loan from lender. </li></ul><ul><li>In July of 1999, Lender initiated a foreclosure against Ms. Borrower seeking $46,500. </li></ul><ul><li>Ms. Borrower’s home is sold to Realtor at a sheriff’s sale on June 20, 2001 for $35,000. </li></ul><ul><li>That same day, Realtor transfers property to Shady Company. </li></ul><ul><li>Between June 20 and October 4, 2001, Shady meets uninformed buyer, convinces buyer to purchase the house. Shady arranges the financing. </li></ul><ul><li>On October 5th, Shady sells the house to uninformed buyer for $98,000. </li></ul><ul><li>According to county records, uninformed buyer’s house is worth approximately $30,000. </li></ul>
  33. 39. To Avoid “Property Flipping” Scams… <ul><li>Consider hiring a real estate professional to represent your interest. (e.g., Realty One, Smythe Cramer, etc.) </li></ul><ul><li>Don’t rely on the seller to tell you what the house is worth. Hire your own appraiser and get an independent appraisal of the house. </li></ul><ul><li>Get an independent home inspection. </li></ul><ul><li>Find out what other buyers have paid for comparable homes in comparable neighborhoods (i.e., “comps”) </li></ul><ul><li>a. Contact the Cuyahoga County Auditor’s Office for “comps”. </li></ul><ul><li>b. Contact the Cuyahoga County Recorder’s Office to see who has had title to the property. </li></ul>
  34. 40. Overview of Some of The Civil Laws That Provide Some Protection To Borrowers
  35. 41. <ul><li>– A federal law which imposes disclosure requirements on lenders. </li></ul>Truth in Lending Act (“TILA”) 15 U.S.C. § 1600 et. Seq. Regulation Z.
  36. 42. <ul><li>– A federal law that provides enhanced protections under TILA to consumers whose mortgages are defined as “high rate”, “high fee” or “high cost” mortgages. </li></ul>Home Ownership and Equity Protection Act of 1994 (“HOEPA”)
  37. 43. <ul><li>– This federal law was enacted to protect homebuyers and homeowners from unnecessarily high settlement costs, fraud and abuse in the home purchase and home refinance process. </li></ul>Real Estate Settlement Procedures Act (“RESPA”) 12 USC 2601 et. Seq. and Regulation X, 24 CFR 3500, et. seq.
  38. 44. Equal Credit Opportunity Act (“ECOA”) <ul><li>– A federal law that requires lenders and other creditors to make credit equally available to persons without regards to their race, color, religion, national origin, age, sex, marital status, etc. </li></ul>
  39. 45. Home Solicitation Sales Act <ul><li>- An Ohio law that regulates transactions consummated at a consumer’s home or anywhere away from the seller’s place of business. It gives the consumer the right to cancel a sale within three business days of the transaction. </li></ul>
  40. 46. Consumer Sales Practices Act <ul><li>– An Ohio law that generally prohibits unfair, deceptive & unconscionable acts and practices in consumer transactions </li></ul>
  41. 47. Possible Remedies If You Find Yourself In A Bad Loan
  42. 48. <ul><li>• May Have Three Business Days to Cancel / Rescind </li></ul><ul><li>• Renegotiate / Loan Modification </li></ul><ul><li>• Bankruptcy or “Short Sale” </li></ul><ul><li>• Possible Civil Remedies Under: </li></ul><ul><li> -The Truth-In-Lending Act (TILA) </li></ul><ul><li> - Home Ownership and Equity Protection </li></ul><ul><li> Act (HOEPA) </li></ul>
  43. 49. • Possible Civil Remedies Under: - Real Estate Settlement Procedures Act (RESPA) - Equal Credit Opportunity Act (ECOA) - Home Solicitation Sales Act (HSSA) -Consumer Sales Practices Act (CSPA)
  44. 50. <ul><li>• Possible Criminal Acts Based On: </li></ul><ul><li>-Fraud </li></ul><ul><li>-Theft By Deception </li></ul><ul><li>- Racketeer Influenced and Corrupt Organizations Act (RICO) </li></ul><ul><li>- RESPA </li></ul>
  45. 51. NEVER, EVER SIGN A LOAN DOCUMENT… BEFORE YOU HAVE READ IT!!!!
  46. 52. <ul><li>BEFORE YOU HAVE READ EVERY PAGE OF EVERY DOCUMENT ( Beware of Riders ) </li></ul><ul><li>WITHOUT UNDERSTANDING WHAT YOU’VE READ!!!! </li></ul>
  47. 53. <ul><li>THAT CONTAINS BLANK SPACES THAT COULD BE FILLED IN BY ANYONE!!! </li></ul><ul><li>UNDER PRESSURE!!! </li></ul>
  48. 54. The Housing Advocates, Inc.’s Home Ownership Assistance Program Sponsored by: Mayor Jane Campbell And Cleveland City Council Copyright © 2003 The Housing Advocates, Inc. All rights reserved.

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