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.
year, misinformed homebuyers, often first-time
purchasers, become victims of predatory lending or loan
Predatory lenders prey on consumers who often can not
get funding through banks, credit unions or other legitimate financial
Predatory lenders charge the borrowers higher rates of
interest, require credit insurance products, require
up-front fees and include hefty prepayment
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
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"
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
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
The Credit Score/Interest Rate
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
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.
mortgages with high balloon
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
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
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
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.
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