Protect Yourself from Predatory Lending
Three segments of the population are especially hard hit by predatory lenders: older consumers; minority consumers who tend not to use traditional banking services, and do business with finance companies; and lower income families with less than perfect credit. Predatory lenders often take advantage of first-time homebuyers and others who may be vulnerable to high-pressure sales tactics.
Nearly all predatory lending occurs in the subprime market where loans are sold to people with less than ideal credit histories. Subprime loans have played an important role in helping millions of Americans achieve homeownership; but unfortunately, some lenders take advantage of vulnerable borrowers. Here are some signs of predatory loans:
- Higher interest rates are charged by predatory lenders than by other lenders, as shown by national figures.
- Excessive points, late charges and prepayment penalties can cost consumers thousands of dollars.
- Credit insurance packing where the lender adds insurance you may not need.
- Asset-based lending where the predatory lender gives you a loan based on the equity in your home, not on your ability to repay or on your income.
- Misrepresentations where a lender offers one set of terms and then changes them at closing.
- Balloon payments where a large sum of money that is beyond your ability to pay is due at the end of the loan.
- High closing costs.
- Deceptive loan servicing where a lender doesn’t provide you with accurate account statements or payoff figures.
- Sounds too easy—if you hear terms like “guaranteed approval” or “no income verification,” you would be well served to steer clear of that particular lender, because the lender probably doesn’t care whether you have the ability to repay the loan.
The most important thing as a consumer you can do to guard against a predatory lender is to find a lender you can trust and ask that person some very important questions, such as:
What is my credit score?
What is the best interest rate today and do I qualify?
Is the loan’s interest rate fixed or adjustable?
What are the total loan fees?
What is the total monthly payment including property taxes and insurance?
Is there an application fee?
Are there prepayment penalties?
Responsible lenders play an important role in helping consumers meet their financial needs, and in helping families achieve home ownership. You can best protect yourself and your assets by properly educating yourself about predatory lending practices; watching for warning signs of unscrupulous lenders; asking the right questions; and, most importantly, developing a long-term relationship with reputable lenders who will work with you to develop loan programs that are right for your particular financial needs and goals.
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Suzanne Carr is a mortgage loan officer at Capitol National Bank.