Predatory Lending

When American dreams turn into nightmares


 Debbi Conrad  |    May 09, 2005
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Predatory lenders impose unfair and deceptive loan terms on vulnerable borrowers through the use of aggressive and misleading sales tactics. False promises and outrageous loan terms and fees can ruin a person‚Äôs credit and even lead to foreclosure. Fees representing more than 10 percent of the loan amount may be ‚Äúpacked‚ÄĚ into the amount financed rather than being itemized and paid up-front.

Predatory lenders target people with damaged credit and low-income levels. African Americans are five times more likely to pay too much for a loan as any other group, and seniors on fixed incomes are the prime target for abusive mortgage and home equity loans.

A lender’s decision to originate a mortgage loan should be guided by the borrower’s ability to repay the loan from income and liquid assets. Predatory lending, however, targets borrowers’ equity in their homes, ignoring the fact that they clearly do not have the financial capacity to repay the loans.

In particularly egregious cases, elderly people living on fixed incomes have monthly payments that equal or exceed their monthly incomes, quickly propelling them into default and foreclosure.

Nobody deserves to be victimized in a predatory loan situation!

Predatory lending warning signs

  • Targeting minority neighborhoods, especially long-time homeowners.
  • Seeking out vulnerable homeowners with medical, credit card or other consumer debt.
  • Frequent, unnecessary refinancing with no benefit to the borrower.
  • Basing the loan amount on the borrower‚Äôs equity in the property, rather than ability to pay.
  • Falsifying loan applications, especially the borrower‚Äôs income level.
  • Loan amounts that far exceed the fair market value of the home.
  • Rolling the cost of unnecessary insurance and other products into the loan, drastically increasing its cost.
  • Excessive prepayment penalties.
  • Large balloon payments, interest-only loans or loans that are ‚Äúnon-amortizing‚ÄĚ or ‚Äúpartially amortizing.‚ÄĚ
  • Contractors linked to the lender are paid for poorly constructed or nonexistent repairs.

Learn how to protect clients and customers from the predatory lending practices. Make sure that vulnerable buyers are educated about the dangers of predatory lending.

Start by providing them with WRA's "Shopping for a Mortgage?" brochure or use the WRA resources at www.wra.org/MortgageResources.

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