Real Estate Law Center: What is Predatory Lending?

What is Predatory Lending?

• What is Predatory
Mortgage Lending?

www.lenderlawlitigation.com
Real Estate Law 877-694-3313
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• Real Estate Law Center Reviews some
tips and solutions

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• Predatory mortgage lending:
– “Imposing unfair and abusive loan terms on
borrowers.“
• According to the office of inspector
general of the FDIC

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

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

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• Here are 9 signs of predatory mortgage
lending practices:

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• Brokers That Charge Higher Interest
Rates
– Charging higher interest rates can be a
predatory lending practice.

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– 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.

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• Unnecessarily Large Fees
– Look out for large fees—especially when
there is no need for them.

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– 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.

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• 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.
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• 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.

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• Targeting Minority Groups
– Also unfortunately, predatory lenders
sometimes target older victims such as senior
citizens or minorities in order to force
unnecessarily expensive loans.

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• 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.
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• 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.
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• 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.
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• Real Estate Law Center

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Real Estate Law Center: What is Predatory Lending?

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