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Predatory lendingIn simplest terms, predatory lending is defined as the practice of granting loans without considering the borrowers ability to repay. What does this definition implies This means a lender is granting loan comfortably secured by a collateral, which may be your car or your house, without really bothering to ascertain your repaying ability, or with the knowledge that you will not be able to repay the borrowed amount. So the moment the borrower will find it impossible to repay the loan, the predatory lender will be all too happy to sell the foreclosed property and profit from it.
However, this definition and the explanation following this definition are not all inclusive, certainly not exhaustive, for it leaves out many subtle forms of predatory lending. For example, there will be some hard money predatory lenders who will grant you a mortgage loan without ever worrying about how you will repay it, provided there is a large amount of equity in your home. So if you defaulted on repayment, the lender will not hesitate in throwing you out of your house.
But consumer finance mortgage lenders can also indulge in predatory lending. They may charge you a high interest rate or may smooth-talk you into taking more money as loan than what your home is really worth.
Thus, in any loan situation where some deceptive marketing or sales practices are involved, all the terms and conditions related to the qualification and payback of the loan has not been properly disclosed, or false documentation has been used to get loan approval, can be identified as a predatory lending scenario.
However, people generally associate predatory lending with the fraud that unscrupulous lenders perpetrate to grab peoples home. Across America, people have lost, and are losing their homes, as well as their investments, thanks to these predatory lenders, dishonest appraisers, crooked mortgage brokers and deceitful home improvements contractors.
Common tactics employed by predatory lenders.
Using crooked appraisers who are hand-in-gloves with them, lenders try to sell properties for much more than they are really worth.
The moment such predatory lending and mortgage brokers spot a person, who for whatever reason may find it difficult to get a loan on favorable terms and conditions, they try to convince the borrower that he/she can easily qualify for the loan and all that is required is a little doctoring of the documents. Thus, borrower is actively encouraged to provide incorrect information about his/her income, expenses, or cash available for down payment. This false documentation usually lands borrower in big trouble later on.
Some lenders try to profit from buyers ignorance by charging high interest rates. Furthermore, this decision of charging a higher interest rate may not be based on the credit history of the borrower but on his/her race or country of origin.
Predatory lenders knowingly lend more money to the borrower than he/she can repay so that they can grab the borrowers home later.
predatory lending also charge fees for a number of unnecessary products and services which the borrower doesnt need anyway.
Some lenders try to convince the borrowers that only high-risk loans such as balloon loan or an interest only payment option will serve their purpose. A borrower, unaware of the full ramifications of such loan types may agree to take such high-risk loans only to repent later.
Predatory lenders can also have steep pre payment penalties in their loan agreement making it almost impossible for the borrower to try and pay off the loan as early as possible and thus save on interest expenses.
predatory lending most preferred targets are those vulnerable borrowers who need cash quickly because of some unemployment, medical or debt problems.
These predatory lenders specialize in stripping owners equity from the home. To achieve this objective, they convince the homeowners to refinance their mortgage again and again when actually it provides no benefit to the borrower.
Home improvements contractors, who have an understanding with such lenders, use high pressure sales tactics to sell home improvements. Once an unsuspecting person is interested in the home improvement products offered by such cheats, they lead the borrowers to predatory lenders who finance these home improvement products at high interest rate.
Watch out for these danger signs.
If a lender tries to convince you that you can get a home loan only from him and from no other source, dont believe this nonsense. Take your time. Always shop around. Compare houses, compare prices and compare loans terms and conditions from different lenders. Never take the decision of taking the home loan from a lender before adequately shopping around.
If you find that the house you are looking to buy is costing, for no apparent reason, a lot more as compared to other houses in the neighborhood, though its not looking any bigger or better, stop right there with the deal because in all probability, there is something wrong with the deal.
If the lender asks you to sign any loan document or sales contract that has some blanks or that contains some incorrect information, never sign any such document. Always remember, before signing any document, make sure that all the information is correct and then cut out any blanks or write not applicable.
If the lender tells you that you need Federal Housing Administration insurance because it provides you protection against loan frauds and property defects dont believe this utterly wrong information. This insurance provides no such protection. If the lender peddles such lies, be on your guard because these things signal that the lender is not honest.
If you find that the cost and loan terms at closing are not what you agreed to before, dont sign anything and just walk out of the whole process because it is a sure sign that the lender is trying to play games with you.
If the lender tries to convince you that refinancing will solve your money problems, be wary of that lender. Many a times, refinancing does prove beneficial not to the borrower, but certainly to the lender!!
If a home improvement contractor tells you that you can get a good deal on home improvement only if you finance it with a particular lender, ask the contractor to just go away and dont waste any of your time.
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