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| Predatory Lending - What Consumers Should Know |
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| What is Predatory Lending? |
"Predatory lending," has become shorthand for describing a variety
of lending practices that may be disadvantageous to borrowers. Abusive or predatory
lending - whether undertaken by creditors, mortgage brokers or home improvement
contractors - may involve fraud or deception, manipulating borrowers through
aggressive sales tactics or taking unfair advantage of a borrower's lack of
understanding about loan terms. These practices occur most frequently in the subprime lending market and target lower-income and minority borrowers.
The term "predatory lending" covers a potentially broad range of
behavior and does not lend itself to a concise or comprehensive definition.
However, predatory lending typically involves at least one, and perhaps all
three of the following elements:
- making unaffordable loans based on the assets of the borrower, rather than
on the borrower's ability to repay an obligation ("asset-based lending")
- inducing a borrower to refinance a loan repeatedly in order to charge high
points and fees each time the loan is refinanced ("loan
flipping")
- engaging in fraud or deception to conceal the true nature of the loan obligation
from an unsuspecting or unsophisticated borrower.
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| How to Avoid Predatory Lending |
The Department suggests the following: |
| 1. |
Shop around. |
| 2. |
Question "Up Front Fees." |
| 3. |
Make sure to use a licensed lender. |
| 4. |
Ask for a "Good Faith Estimate." |
| 5. |
Have some idea what you should qualify for. |
| 6. |
Find out if your monthly payments will change during the loan term. |
| 7. |
Find out if there is a "balloon" payment due. Some loans may have small monthly payments, but require a big "balloon" payment at the end of the loan period. |
| 8. |
Request a review of your settlement sheet three days before closing. |
| 9. |
Find out if you have a three-day "right of rescission." |
| 10. |
Do not sign any waiver of rights. |
| 11. |
Find out if the loan amount includes various other insurance policies. |
| 12. |
Find out if your taxes are included in your monthly payment. |
| 13. |
Make sure that you are not rushed or pushed into the loan process. |
| 14. |
Ask the lender as many questions as you can. |
| 15. |
Ask if the loan has a prepayment
penalty. |
| 16. |
Again, shop around. |
| 17. |
Read all documents carefully before signing. |
| 18. |
Do not sign any documents with blank spaces. |
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| Other Resources |
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Tools
Legislation
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Other Entities
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| Press Releases |
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| Updated: 2006 |
