Do you know what predatory lending is? “Predatory lending is the unfair, deceptive, or fraudulent practices of some lenders during the loan origination process“ according to Wikipedia. Lenders that use the abusive practices target unsophisticated people who lack good credit standing, economically deprived, minority groups, the elderly and disabled people.
Predatory lending is difficult to say the least in trying to win a lawsuit in court. Without substantial evidence to prove that you have been victimized by unfair, deceptive and fraudulent practices, you will be fighting a battle with no ammunition.
To that end, let’s understand what is meant by some of the following typical practices used by some unethical and unscrupulous lenders. Be sure to review the “PREDATORY LENDING CHECKLIST.”
Steering and Coercing
Often times, lenders use advertisements that are geared toward borrowers with “bad credit” and considered to be a high credit risk that leads to a potential default. Therefore, the ad was used to steer and coerce borrowers that know their credit is bad but will call the lender(s) in the belief that they will extend credit to them. The problem with this typical inducement as argued by consumer groups is the practice is an unethical and unfair practice played by the lenders. On the other hand, the lenders argue that the attempt is made to reach out to less creditworthy borrowers with the intent to create “good faith” and meet government CRA (Community Reinvestment Act) policies.
Risk-Based Pricing that is Unjustified
Likewise, lenders use abusive practices to charge the less creditworthy borrower higher interest rates and fees in order to justify a potentially high risk loan that will in all probability result in foreclosure. Lenders believe that if they charge higher interest rates and fees this will offset the same yield in their portfolio as a low risk loan.
Whereas consumer groups view this unethical practice as predatory, deceptive and abusive because it victimizes vulnerable borrowers with less income and the means to sustain stable mortgage payments. They believe it only increases the risk of loans going into default.
Mortgage and Credit Insurance
Another unethical practice that lenders use, as viewed by consumer groups, is creating mortgage insurance that protect the lender against a defaulted loan by the borrower. This tactic is used for all borrowers with down payments of less than 20%. Mortgage insurance premiums are usually between 1-2% upfront and typically have monthly fees of .30-.35% of loan amount and are financed into the loan amount. However, for borrowers with less than perfect credit the monthly mortgage insurance fee could be charged an additional fee to compensate for the “bad credit and low FICO score.”
Aside from paying regular mortgage insurance, fire and hazard insurance, some lenders have mandated that borrowers purchase life insurance, disability insurance, and credit insurance and may even require that all family members be included.
Experienced borrowers negotiate the price structure of the loan and understand that they can negotiate or buy down an interest rate at a comfortable payment for them. Unfortunately for most naïve borrowers, they are never offered or extended the same opportunities. Most lenders lead the average unsophisticated borrower into “unilateral loan agreements” (meaning only one side has agreed to all conditions with no compromise from the other party). This display of lack of respect and total disregard of mutual agreement in clearly defining the terms and conditions of the loan is another abusive tactic employed by lenders.
When going into escrow, the lender and all parties involved in the transaction will present loads of pages of legal documents with no explanation of the meaning of each document, but politely request the borrower to “sign here” so they can quickly exit their office.
Little does the inexperienced and innocent borrower know that they have the ability to negotiate not only the interest rate but the terms and conditions of the loan prior to signing off. Unfortunately, in recent years, we have documented proof that displays altered documents signed by lenders and their cohorts after the loan documents were signed by the borrower(s).
Were you given the opportunity to negotiate with your lender? Do you suspect abusive practices and predatory lending? Ask questions by contacting an attorney here
Some lenders have engaged in the art of “loan flipping.” The practice of loan flipping does not work to the advantage of the homeowner because it usually strips the homeowner of equity, excessive fees, higher interest rates and loan products that are not commensurate with the borrower’s profile.
In most cases, borrowers have been told they would be able to pull out cash to make home improvements, or pay off a car; but the borrower ends up with a higher mortgage payment plus paying excessive fees, a higher interest rate, and loss of some equity.
Needless to say, in most cases, loan flipping will involve a balloon payment insertion into the contract which means the loan is now due in 2, 3 or 5 years, instead of 30 to 40 years.
Most lenders tend to hide, in small print, your legal rights to sue them by mandating your signature on documents that will prevent the homeowner from filing lawsuits for fraud or predatory actions. Your only means of recourse is filing a grievance via arbitration using none other than them—the lender. Mandatory arbitration is the preferred course of litigation by the lender because it prevents the homeowner from filing a class action lawsuit.
Before you sign on the dotted line, relinquishing your legal rights to a fair and equitable trial, review the loan documents well and beware of the hidden implications that will reduce your legal rights. Even though you can hire an attorney to represent you, most attorneys will not want to get involved because they are not guaranteed to be paid as in a court hearing plus the right to file an appeal would be eliminated. In most cases the odds are stacked against you, meaning your chance of going against a large corporation pitted against “little ol’ you” is high. Again, be careful about signing over your legal rights.
Within the past five years more than 35 states have revamped their mortgage lending laws to prevent predatory lending. Most of these states have identified prepayment penalties as an excessive and abusive fee and have taken strong action to either minimize the legal limit if not eliminate it altogether.
In addition, many homeowners and consumers have been made aware of the destructive and harmful practices that have been played upon them, and are now aware to report mortgage fraudulent practices.
If you have questions about your mortgage loan because you suspect that you are victim of an predatory lending abuses, ask questions to get a quick answer by clicking below: