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áMortgage Center Back

Avoid Predatory Loans
Buying or refinancing your home may be one of the most important and complex financial decisions youll ever make. Many lenders, appraisers, and real estate professionals stand ready to help you get a nice home and a great loan. However, you need to understand the home buying process to be a smart consumer. Every year, misinformed homebuyers, often first-time purchasers or seniors, become victims of predatory lending or loan fraud.

Don't let this happen to you!

Predatory home mortgage lenders look for people who may have financial difficulty. They hunt for people who may be behind on property taxes, who need to fix up their home, or who need money for medical bills. Once they find these people, the lenders often use high-pressure sales talk, high interest rates, outrageous fees, and repayment terms that the person can't afford. Fast talkers can trick homeowners into taking out loans that they can't afford to pay back. When they can't make the payments, their homes are at risk of foreclosure.

Even if you don't have financial troubles, no one wants to pay more than is needed. Why pay interest rates higher than you need to? Why pay unneeded fees or charges? Whether you have excellent credit or not-so-good credit, you want the best possible loan you can get.

Don't be fooled by loan offers you see on television or receive in the mail. They don't tell the full story.

Be a smart borrower. Don't get caught in a bad loan!

Knowledge is your biggest ally, so get informed. Use the internet or find a trusted real estate agent or lender to advise you. Ask your friends about their homebuying experiences and ask for references for agents and lender. Get a real estate attorney to help you if you can afford it.

Do your own homework and get information about the prices of other homes in the neighborhood. Don't be fooled into paying too much. Shop for a lender and compare costs. Be suspicious if anyone tries to steer you to just one lender.

To keep yourself safe from dishonest lenders, you need to know how they operate. In communities across America, people are losing their homes and their investments because of predatory lenders, appraisers, mortgage brokers and home improvement contractors who:

  • Sell properties for much more than they are worth using false appraisals.

  • Encourage borrowers to lie about their income, expenses, or cash available for downpayments in order to get a loan.

  • Knowingly lend more money than a borrower can afford to repay.

  • Charge high interest rates to borrowers based on their race or national origin and not on their credit history.

  • Charge fees for unnecessary or nonexistent products and services.

  • Pressure borrowers to accept higher-risk loans such as balloon loans, interest only payments, and steep pre-payment penalties.

  • Target vulnerable borrowers to cash-out refinances offers when they know borrowers are in need of cash due to medical, unemployment or debt problems.

  • "Strip" homeowners' equity from their homes by convincing them to refinance again and again when there is no benefit to the borrower.

  • Use high pressure sales tactics to sell home improvements and then finance them at high interest rates.

Predators are fast-talkers who take advantage of homeowners by lying to you about the process of homebuying. These are some of the tactics they might use:

  • The lender or investor tells you that they are your only chance of getting a loan or owning a home. You should be able to take your time to shop around and compare prices and houses. So don't listen to them and find the best loan for you.

  • The house you are buying costs a lot more than other homes in the neighborhood, but isn't any bigger or better.

  • You are asked to sign a sales contract or loan documents that are blank or that contain information which is not true.

  • You are told that the Federal Housing Administration insurance protects you against property defects or loan fraud - it does not.

  • The cost or loan terms at closing are not what you agreed to.

  • You are told that refinancing can solve your credit or money problems, when all they intend to do is increase your debts.

  • You are told that you can only get a good deal on a home improvement if you finance it with a particular lender.

Once you've found the loan you want, make sure you get the deal you were promised. Close your deal carefully.

Follow these steps:

  • Read the loan papers carefully before you sign.

  • Ask a lawyer, housing counselor, or a trusted friend to help you go over the papers.

  • Be sure you understand exactly what the lender is offering -and what you're going to have to pay.

  • Ask to have all fees explained.

  • Ask questions if you don't understand something.

  • Take your time. Don't be rushed.

  • Be sure that all blank spaces are filled in on all copies before you sign.

  • Know your options about credit life insurance. Only buy it if you really need it. Many people don't. If you do want it, shop elsewhere for the best terms. If the lender insists on it, find another lender. Be sure to look for this item on the forms given you at settlement.

  • If what you read in the loan is not what you wanted or expected, don't sign the papers! Be prepared to walk out of the settlement (closing) if you find surprises.

When discussing your loan terms and afterward, you need to know your legal rights and use them if necessary.

You have a legal right to know:

  • The total cost of borrowing the money (fees and interest);
  • The annual percentage rate (APR);
  • The number of payments and the payment amounts;
  • How long you have to pay back the loan; and
  • The total amount you have borrowed

If the lender refuses to give you any of the above information, it casts suspicions about his dealings and you'd best find another one.

With home equity loans, you have the right to change your mind, even after you have signed the papers. If you decide within three business days after you sign the papers that you do not want the loan, you have the right to cancel. You can cancel by sending the lender written notice of your decision to cancel by mail, hand delivery, or telegram within three business days. Saturday is a business day. For example, if you sign at 3 PM on Thursday, you have until the end of Monday to cancel. Ask for "return receipt requested" at the post office for proof of when you sent the notice.

If you don't want to turn your homebuying and homeownership experience into a nightmare, then you'd better be careful and steer clear of dishonest lenders.

If a deal to buy, repair or refinance a house sounds too good to be true, it usually is!

Report things that go wrong and get legal help.

If you think that your lender is dishonest - for example, you discover fees that you weren't told about or you were required to buy credit insurance - report it!

  • Call your state Attorney General or state office of banking. You can find the phone numbers in the government listings of your phone book.

  • Report the problem to the Federal Trade Commission (FTC) at 1-877-FTC-HELP, or at www.ftc.gov.

  • Ask a lawyer to look at all of your documents to see if there are state or federal laws that would let you get out of the loan.