Home mortgage borrowers: Beware of predatory lenders

Nowadays, you would find a lot of news on victims of predatory lending scams. If you’re looking for a home mortgage loan, then you should look out for predatory lenders. These unscrupulous lenders always try to make the most of unsuspicious borrowers. They always aim at cash poor but house rich borrowers who have accumulated plenty of equity in their homes but don’t have sufficient funds available.

The loans provided by predatory lenders usually come with exorbitant interest rates and other charges.

Predatory lending refers to a variety of lending activities that takes undue advantages from the consumers. Borrowers often land up obtaining loans that they can’t manage, have ambiguous or misleading terms or which cost excessively and might result in one’s home being taken away in the end.

Majority of predatory loans originate in the subprime mortgage market. However
, all subprime lenders are not predatory lenders.

You should be careful about predatory lending activities when you’re looking for a loan. You should check the background of a lender with the Better Business Bureau. Given below are some of the common predatory lending activities that you should know and stay away from:

Packing

It is the technique of summing up credit insurance and other additional costs to raise the profit of the lender on a mortgage.

Equity stripping

This takes place when a loan is offered on the basis of the equity in a property instead of a borrower’s capacity to pay off the loan. These loans normally lead to acquisition of the home of the borrower and any equity the borrower had accumulated in their homes.

Traps

Terms and conditions that would probably compel the borrower to refinance or get their homes foreclosed. The most familiar traps are negative amortization, balloon payments, compulsory arbitration and prepayment penalties.

Flipping

This scam takes place when a lender persuades a borrower to refinance a home mortgage again and again, usually within a small period, asking for high fees and points on every occasion.

How can you identify a predatory lender? Given below are some “dos” and “don’ts” that can save you from a predatory lender:

Dos

• You should shop around for the most suitable loan for your needs

• Verify the trustworthiness of the lender with the BBB

• Go through all the documents carefully or get somebody reliable to do it for you

• You should borrow just the necessary amount that you’re able to pay off

• You should understand that you usually have 3 days to terminate loans signed on your property (right of rescission).

• You should register a complaint with the Better Business Bureau, the Department of Consumer Affairs in your locality or the attorney general’s office in your state if you feel you’ve fallen prey to a predatory lender.

Don’ts

• You shouldn’t work with a lender that you have not explored.

• You must not sign a document that has blank areas.

• You shouldn’t make payments for upfront fees without any clarification.

• Don’t make a decision in haste only since it’s a “limited period” deal.

• You mustn’t misrepresent facts on your home loan application.