There has been a lot of talk lately about predatory lending in the mortgage industry, but not much talk about what it is. Predatory lending covers a lot of area and some of the practices that are used in it are somewhat difficult to understand for the average consumer. Here are a few aspects of predatory mortgage lending that might be of interest.
The first thing consumers should understand is that predatory lending does not begin and end with the lenders themselves. It is true that there are several lenders who are guilty of bad loan practices, but there are others just as guilty. These include appraisers, mortgage brokers, home builders, and home improvement contractors to name a few.
Some of the things that you want to watch out for when you are considering a home purchase include:
Always think twice before working with someone who will sell properties for much more than they are worth by using false appraisals that inflate the value of the home.
Never work with anyone who wants you to lie about your income, expenses, or job history. They may also want you to lie about the amount of cash that you have on hand.
Stay away from lenders who encourage you to borrow more money than you know you can repay. This is one of the fastest ways to foreclosure known.
Some predatory lenders will charge high interest rates to home buyers based solely on their race or national origin. The black community is especially hard hit with this one.
There are also some lenders and other professionals who will charge high fees that are not normally a part of the home buying process. If someone asks you to pay a fee for a product or a service make sure you understand what it is you are paying for.
Be very careful when working with anyone who tries to pressure you into taking a home loan that contains high-risk factors. These include things such as balloon loans, interest only payments, and steep pre-payment penalties.
The elderly seem especially vulnerable to those predators who use high-pressure sales tactics to sell home improvement projects or work and then finance them at very high interest rates.
Lending predators are good at their work. If they were not, there would not be such a problem with them. Some of the cons they use to pull people in include such things as telling a home buyer that they, and only they, are the only ones who will finance the home. They may also try to convince you that the home you are looking at is worth much more than surrounding homes even though there is no physical proof that it is. Many of these folks want home buyers to sign contracts or other documents that have blank spaces. Home buyers should never sign these types of documents.
Another crafty tactic is to hand over a higher than expected bill at closing. They understand that after all you have been through to get to this final stage you are more likely to pay the added charges. Do not pay them unless it is proven that they are legitimate charges.
The best advice is to be careful and to be wary. Take your time and do not allow lenders or others to pressure you or to push you into a contract that you do not fully understand.
Peter Kenny is a writer for The Thrifty Scot, please visit us at Debt Management and Remortgage Rates
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