Buyer's Guide
Lansing Area Real Estate
REAL ESTATE
 
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Predatory Lenders 

In the early 90s lenders began offering mortgage loans to borrowers with blemished credit and created what is now known as the Subprime market. These loans are geared to those with lower credit scores and are priced higher to accommodate lender risk. While not all Subprime loans are predatory, all predatory loans are Subprime. 

Many lenders, and Real Estate professionals stand ready to help you get a nice home and a great loan.  However,
each year, misinformed homebuyers, often first-time purchasers, become victims of predatory lending or loan fraud.

Predatory lenders prey on consumers who often can not get funding through banks, credit unions or other legitimate financial institutions.

Predatory lenders charge the borrowers higher rates of interest, require credit insurance products, require exorbitant
up-front fees and include hefty prepayment penalties. 

A loan or lending practice may not seem predatory until compared with a similar loan product offered by other lenders. The situation may not seem abusive until when everyone gets to the closing table and the fees or charges differ from what was previously disclosed. 


Predatory lending practices

Bait and Switch. 
The lender offers one set of loan terms when the borrower applies, but pressures the borrower to accept worse terms at the closing. This is how it works...

The borrower is told that he has a secure loan and to make preparations for moving. On the day of closing the broker reveals that someone has discovered a serious problem with the borrowers credit and that he can no longer fund the loan that was originally offered. Knowing that the buyer has cancelled his apartment lease and has an eager family waiting outside in a U-Haul moving truck, the broker now offers a high interest loan with additional fees financed into the loan. 

The "Unbelievably Low Rate ARM" Scam.  
You have a weak credit score, yet the lender is offering to put you into a low interest adjustable rate mortgage that will convert to a higher interest loan in two years. 

Normally, a buyer would refinance the loan and convert the ARM to a conventional loan when this occurs. However, hidden in the agreement are terms requiring the borrower to pay an extremely high pre-payment penalty if the loan is prepaid the ARM within THREE Years.

The Credit Score/Interest Rate scam. 
You're told that your credit scores are too weak for you to qualify for a conventional loan at a modest interest rate. The broker suggests that he might be able to offer you a loan at a higher interest rate. Naturally, you can refinance when your credit has improved!  

This situation is normally fair and would be acceptable if your credit scores are truly low. However, a predator who has gained your trust may mislead you into believing that your scores are too low for anyone else to be able to do business with you. Suggesting that what he offers is the only loan you can get. 

The predator broker is expecting a kickback for jacking up your interest rates. The higher the interest rate, the higher the kickback.
Shop around!

Adjustable rate mortgages with high balloon payments. 
This loan that includes an unreasonably high payment due at the end of or during the loan's term. The balloon payment is often hidden and turns out to be almost the size of the original loan. These loans are structured to force foreclosure or refinancing. Most adjustable rate mortgage come due in five years.

High closing fees for financing the loan. 
Predatory lenders usually target first-time home buyers and load up the loan with excessive upfront charges such as excessive origination fees, points, and additional junk fees to pad the closing costs. Often the buyer doesn't have ready cash to cover such fees and must ultimately finance the closing costs into the loan.


Fraud and Deceit.  
Some brokers may encourage borrowers to lie about their income, expenses, or cash available for down payments in order to get a loan. These predators will knowingly lend more money than a borrower can afford to repay.


Do NOT let anyone persuade you to make a false statement on your loan application, such as overstating your income, the source of your down payment, failing to disclose the nature and amount of your debts, or even how long you have been employed. When you apply for a mortgage loan, every piece of information that you submit must be accurate and complete. Lying on a mortgage application is fraud and may result in criminal penalties.

Insurance Packing.  Packing loans with unwanted credit life, credit disability, unemployment, property and health insurance policies that range from over priced at best to a complete rip-off.

Prepayment penalties.  Huge fees charged when a borrower pays off the loan earlier or refinances it into another loan. Prepayment penalties are designed to lock borrowers into high interest loans.

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