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Predatory lending by unscrupulous lenders has been on the
rise. Some of the predatory lending practices can be in
the form of predatory mortgage lending, payday loans or
any other loan that makes it difficult or impossible for
people to keep up the payments.
Predatory lending typically targets the poor, elderly,
disable and people of color. Predatory lenders typically
charge higher fees, excessive interest rates and keep the
true costs of the loan secret. Most predatory lenders will
approve a loan without assessing a person's ability to repay
the loan, convince borrowers to refinance frequently and
set terms that make it difficult for the borrower to refinance
later.
Since a predatory lender is out to make money for him or
herself, here are a few warning signs of predatory lending
practices:
- The total bank fees are greater than 2-percent
- A balloon payment is due at the end of the loan (lump
sum)
- The loan is based solely on home equity, disregarding
the borrower's income
- Credit life insurance is added to the loan
- There are prepayment penalties on the loan
Predatory mortgage lending practices are the most costly
since the predatory lender stands to make the most money.
According to the FDIC, "A few unscrupulous lenders
are tricking cash-strapped, unknowing borrowers into expensive
home equity loans and mortgages. The big risk: If you can't
repay the loan you could lose your home. Here is useful
information for anyone thinking about a home loan.
Homeownership is at an all-time high. That's great news.
But, the media, financial regulatory agencies and law enforcement
officials also are reporting that something is robbing homeowners
of money and putting many of these same families at risk
of losing their homes. It's a problem known as 'predatory'
lending.
There is no clear-cut definition of a predatory loan, but
many experts agree that it is the result of a company misleading,
tricking and sometimes coercing someone into taking out
a home loan (typically a home equity loan or mortgage refinancing)
at excessive costs and without regard to the homeowner's
ability to repay. Victims who have trouble repaying a predatory
loan often face harassing collection tactics or are encouraged
to refinance the loan at even higher fees."
The
Department of Housing and Urban Development (HUD) has
been taking action. Since the 1999, HUD has been actively
involved in combating predatory lending through research,
consumer education, regulation and enforcement actions against
lenders, appraisers, real estate brokers, and other companies
and individuals that have victimized homebuyers.
Payday loans, overdraft loans and tax refund loans are
being given by predatory lenders who target the poor and
those who are strapped for cash. It needs to be noted that
not all who offer these types of loans are predators and
some borrowers have very good reasons for taking out these
loans. If you believe you have been victimized by one of
these lenders, though, you can contact an organization called
Center
for Responsible Lending as they are combating these
types of abuses.
When taking out a loan, always read the fine print and
have your lender explain all of the fees associated with
the loans. Get second and third loan offers if possible
and be objective when taking out a loan. When a loan sounds
too good to be true, it usually is.
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