Predatory lending practices are the fraudulent, deceptive, and unfair tactics some people use to dupe consumers into mortgage loans they can’t afford. Burdened with high mortgage debts, victims of predatory lending find themselves unable to manage the upkeep of their houses. They struggle just to stay on top of their mortgage payments. Often, the strain is too much. They succumb to foreclosure and lose their homes, which is devastating.
Run down and vacant houses, the inevitable result of predatory lending, wreak havoc on neighborhoods. Property values fall. People move away. Neighborhoods that once were stable start to crumble. Something that has been so important for so many people lay in ruins. Everyone who lived in a neighborhood destroyed by predatory lending becomes a victim.
The United States Attorney’s Office has made combating predatory lending a priority. The Office is taking a comprehensive approach to addressing the problem of predatory lending through education, prosecution, and remediation.
EDUCATION
An educated consumer is the predatory lending syndicate’s worst customer. Educated consumers know what loans are right for them and where to find them. The United States Attorney’s Office has prepared a brochure with some helpful information about preventing mortgage fraud. You can print it out, double-sided, and fold it in thirds to hand it out. PROSECUTION
The U.S. Attorney’s Office has prosecuted and will continue to prosecute the worst predatory lenders. The Office can use your help. Pay attention to what is going on in your community. If something looks suspicious, check it out. Report it.
Tips to Protect Your Home:
Get help! There are scores of housing and credit counselors that can help you decide whether a loan is right for you.
Know your credit rating. Obtain a copy of your credit report.
Trust your instincts. If it sounds too good to be true, it probably isn’t true. Many predatory lenders are slick salesmen. They know how to talk. They don’t always tell you the whole truth. If a deal doesn’t sound right to you, walk away.
Ask questions, demand answers. Predatory lenders will try to fool you by making your loan confusing. If you don’t understand anything, ask. Demand an answer.
Read everything. Get all the loan documents before closing. Don’t sign anything until you have read it. If there is something incorrect, fix it. If you’re confused about something, ask.
Don’t fall for a “bait and switch.” If what you read in your loan papers is not what you wanted, expected, or agreed to, don’t sign. Be prepared to walk out.
Learn about your loan. There are many organizations that produce publications that can be helpful.
Shop around. There are lots of people who may be willing to give you a loan. Most of them are honest, responsible people. Find them. Call as many banks as you can. Look in your newspaper’s real estate section for advertisements. Go to the library and search the internet; try “mortgage,” “mortgage rate,” and “mortgage companies.”
Take your time. A predatory lender will try to rush you so you can’t ask questions. Take all the time you need to understand what your deal is.
Say “No.” Don’t let someone talk you into something you really don’t want or need. Also, it’s ok to change your mind.
Never let a contractor get a loan for you. If you are doing home improvements, a contractor may tell you that he can get a loan for you. Don’t let him. Find the loan yourself; it will be cheaper.
Don’t make final payment to a contractor until all the work is done. Some contractors may ask you to sign over checks to them or to sign so-called “completion certificates” before they finish the work on your house. Don’t. Make sure you’re happy with the work on your house before you turn over any money to a contractor.
Avoid pre-payment penalties. If possible, don’t take a loan that penalizes you for re-financing. You may get stuck in a loan that you can’t get out of.
Don’t lie. No matter what anyone else may tell you, it’s not ok to lie on a form, even a little. If you get a loan based on false documents, you may be getting in over your head. You won’t be able to afford the loan.
Report wrongdoing. If you learn that someone did something illegal, report it.
Red Flags:
Aggressive solicitations. Whose idea was it to get this loan? Did someone sell it to you? Be wary of anyone who came to you trying to sell you a loan. If you need a loan, shop around for it yourself.
Loan flipping. Loan flipping is pressuring you to re-finance your loan over and over. Before you re-finance, make sure a new loan makes you better off. For instance, do not refinance a low interest loan into one with a higher interest rate. See a housing counselor.
High fees. Look at your Good Faith Estimate of Costs and your settlement sheet. Do you know what each fee is for? If not, ask. If your total fees are more than 5% of your loan, that’s probably too much.
Property taxes. If you don’t save enough money to pay your tax bill, a predatory lender will try to lend you money for your taxes. You may want to have your taxes “escrowed.” That means that you will put aside some money each month for your taxes.
Balloon Payments. A balloon payment is one very large payment you make at the end of the loan. Predatory lenders like balloon payments because they can tell you that your monthly payment is low. The problem is that you may not be able to make the payment and will need to re-finance. You’ll need a new loan with new fees and costs.
Consolidating debt. It’s not always a good idea to pay off your credit cards with a mortgage loan. If you can’t pay your credit cards, it’s almost impossible for someone to take your house. If you consolidate, however, your house is collateral. Consolidating means you risk losing your house to pay your credit cards.
Many government organizations publish consumer materials about predatory lending online, so be sure to consult those for more information.
Source: U.S. Department of Justice
Felicia Guidry is 2023-24 President of the Houston Black Real Estate Association (HBREA).