Avoid Predatory Loans |
As a borrower, you have rights.
To get the best deal, follow this advice from the Center for
Responsible Lending, MSN Money and the American Association
of Retired Persons (AARP).
- Don't take the first deal offered. Shop around.
- Don't sign something you don't understand. Ask questions and talk to
a trusted friend or adviser.
- Don't fall for high-pressure sales tactics.
- Don't trust ads promising: "No Credit? No Problem!"
- Don't sign blank forms that the lender promises to fill in later.
- Don't borrow more money than you need.
- Don't accept payment terms that you can't meet.
- Don't agree to balloon payments. This large sum of money due at the
end of a loan could cost borrowers their home if they can't meet the
payment or refinance the loan (usually at an excessive cost).
- Don't purchase credit insurance with your loan. Usually this
insurance is extremely profitable for the lender but provides little
benefit to the borrower.
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Spot Predatory Lenders |
According to the Center for
Responsible Lending, predatory lenders promise loans that
sound too good to be true. Below are the Seven Signs of
Predatory Lending:
- Excessive Fees:
Fees below one percent of the loan are typical on
competitive loans. Fees totaling more than five percent
of the loan are typical of predatory loans.
- Abusive Prepayment
Penalties: These are fees imposed for paying off
the loan early. An abusive prepayment penalty is
one that costs more than six months interest or is
effective more than three years.
- Kickbacks to Brokers:
A "Yield Spread Premium" or YSP is a cash bonus that a
lender gives a broker for placing borrowers in a loan
with a higher than normal interest rate. The higher the
interest rate, the higher the kickback to the broker, at
your expense.
- Loan Flipping:
Refinancing a loan to generate fee income, without
providing any net tangible benefit to the borrower,
constitutes flipping.
- Unnecessary Products:
Lenders should not sell unnecessary insurance or other
products along with the loan.
- Mandatory Arbitration:
Borrowers are not allowed to seek legal remedies in
court if their home is threatened by loans with illegal
or abusive terms.
- Steering & Targeting:
"Steering" borrowers into a "subprime" mortgage when
they could qualify for a mainstream loan.
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