Are you a Victim of Predatory Lending Practices?
By Sadiya Anjum
Sometimes if a lender offers terms that are too good to be true – then maybe they are not true! In every business, there will always be people trying to make extra bucks at your cost or just con-artists getting you into a load of trouble. When it comes to home buying and finance, getting swindled could leave you homeless. Predatory lending should be watched out for and awareness is the only way you can save yourself from drowning.
Predatory lending is basically lending practices which are unfair and leave the borrower with no gain whatsoever. Predatory lenders make a lot of money while leaving the borrower in a lurch. They usually target borrowers in a weak position, like people with a weak credit history, minority homeowners, the elderly etc.
Due to these unfair practices many people are losing their homes with their credits ruined and hopes shattered. Knowing what predatory lending involves is a key to protect yourself. Some of the most common predatory lending practices are given below:
Compelling and pushing borrowers: Aggressive sales techniques compelling borrowers to consent to balloon loans, interest only payments, refinancing when unnecessary or ridiculous prepayment penalties are all unacceptable. If the aforementioned cause harm to the borrower then they are predatory practices as the lender maybe well aware of the consequences.
Exorbitant fees: Lenders charging inflated fees and hiding the actual costs. Sometimes a borrower may get charged for non-existent services or products but more often they have to suffer inflated prices.
Lies: Encouraging borrowers to lie about their income, expenses or savings to obtain a loan easily. These are not white lies; they may sometimes even be a criminal offense, but they will most definitely put you in a tight spot when you have to make your payments.
Excessive loan: Even lending an excessive amount when the lender is fully aware that the borrower cannot afford to repay this is considered as predatory.
Including unnecessary insurance policies: Credit insurance, life insurance, disability insurance etc. is included in the loan. The borrower has to be able to use his own discretion in selecting insurance. The company cannot include these in the loan and force the borrower into it.
Discrimination: Charging higher interest rates not based on the credit history of the borrower but because of his/ her national origin or race.
Excessive Prepayment penalties: A prepayment penalty that is steep is unacceptable. Most often excessive prepayment penalty is included in subprime mortgages under the pretense of the borrower being unable to pay off early. An early pay off will be disadvantageous to the lender as he will not be able to benefit from high interest rates.
Refinancing over and over again: Encouraging and forcing homeowners to refinance their mortgage several times leaving the owners with lesser equity on the property each time. With each new loan the owner may gain some amount but the higher interest rates, prepayment penalties, high fees etc. may drain that money. Not to mention if a balloon payment is part of the deal, the owner has no choice but to refinance if he cannot pay off the loan at the end of the term.
No legal action just arbitration: Some lenders include a clause in the fine print stating that the borrower is not allowed to take any legal action against the lender or the mortgage company. Instead they include mandatory arbitration in case of any disputes. The borrower is at a disadvantage because arbitrations usually take place with little representation for the borrower. Apart from this, some lenders reserve their right to go to court while denying the same to the borrower. This leaves the borrower seeking for justice where none can be found.
The above are the most common predatory lending practices. If the borrower at any point feels that his lender is taking advantage of him or suffers an unfavorable deal, it is time he took advice from state or federal agencies dealing with predatory lending practices. Even if it turns out that the lender’s actions are not predatory, it is better to know the truth than letting someone take advantage of you.
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