Lending and mortgage origination practices are considered “predatory” when the borrower is pressured into taking a home loan that is not what they expected. Sounds like the auto industry – doesn’t it. Predatory lending practices can involve a variety of “sharks, including lenders, mortgage brokers, real estate brokers, attorneys, appraisers, and home improvement water damage carpet Brisbane contractors. Their schemes often target people that have small incomes but a large amount equity in their homes.
Loan products themselves are not considered predatory. For example, a loan with a variable interest rate can be a very good financial tool depending on the situation and investment or home owning strategy of the borrowers. However, if a borrower is sold a loan with a variable interest rate, but it turns out to be a mortgage loan with a fixed interest rate, the borrower is the victim of a bait and switch or predatory lending practice. In short, this type of conduct is really a type of mortgage fraud practiced against consumers. (Gosh, that sounds like Bank of America and their credit card come-ons!! They sucker you in with their marketing blurbs and then change the terms on you.)
Homeowners can be lured into dealing with predatory lenders by aggressive mail, phone, TV, and even door-to-door sales tactics. Their advertisements promise lower monthly payments as a way out of debt (just like Bank of America promises), but they don’t tell potential borrowers that they will be paying more and for a longer period of time. This mortgage scammers may use “affinity marketing” and target minority communities or by advertising in a specific language, or target neighborhoods with high numbers of elderly homeowners, or homeowners with little access to credit.
The Importance of Disclosures
Within three days of filling out a loan application, your mortgage broker or lender must provide you with a written document stating the terms and conditions of your loan. Most of them give it to you while you are at the table signing the final closing papers.
Disclosures are required at two major points in all mortgage transactions. Disclosures made at the very start, or point of origination, are intended to give borrowers advance notice of the loan program and the costs associated with the program. Disclosures made at the end, or loan closing, are designed to confirm for the borrower that they are receiving what they expected. If disclosures are not provided, do not do business with this lender or broker. It has been my experience that it is rare for a mortgage broker or lender to comply with these rules. After researching this article, I am determined to give the “Italian Salute” to lenders that do not comply. (sorry, no offense to Italians is intended – it is just a figure of speech – I mean gesture).
Mark V. Schwartz is a full time Real Estate Investor and Internet Entrepreneur, and founder of The Internet Real Estate Center, an Internet based company that shows people how to profit using the Internet and eBay Real Estate as a major component of their Real Estate marketing strategy.