How to Spot and Avoid Predatory Lending

Predatory lenders promise loans that are "too good to be true" and pressure borrowers to take them on the spot. Here's a few things you or your family and friends should know about spotting and avoid predatory loans:

How to Spot a Predatory Loan

*Balloon payments.

*High interest rates.

*Monthly payments you can't afford.

*Penalties for early pay-off of the loan.

*Unauthorized refinancing of your loan.

Abusive Practices: 7 Signs of Predatory Lending

1. Single Premium Credit Insurance

Credit insurance premiums should not be financed into the loan up-front in a lump-sum payment. One type of credit insurance, credit life, is paid by the borrower to repay the lender should the borrower die. The product can be useful when paid for on a monthly basis. When it is paid for up-front, however, it does nothing more than strip equity from homeowners.

2. High Fees

The borrower should not be charged fees greater than 3% of the loan amount (4% for FHA or VA loans). Points and fees (as defined by HOEPA) that exceed this amount (not including third party fees like appraisals or attorney fees) take more equity from borrowers than the cost or risk of subprime lending can justify.

3. Prepayment Penalties

Subprime loans should not include prepayment penalties, for the following reasons:

Prepayment Penalties Haunt Many Refinancers

Prepayment penalties trap borrowers in high-rate loans, which too often leads to foreclosure. The subprime sector should provide borrowers a bridge to conventional financing as soon as the borrower is ready to make the transition, though prepayment penalties are designed to prevent this from happening.

Prepayment penalties are hidden, deferred fees that strip significant equity from over half of subprime borrowers. Prepayment penalties of 5% are common. For a $150,000 loan, this fee is $7,500, more than the total net wealth built up over a lifetime for the median African American family.

Only 2% of borrowers accept prepayment penalties in the competitive conventional market, while, according to Duff and Phelps, 80% in subprime do.

4. Yield-Spread Premiums

Brokers originate over half of all mortgage loans, and a relatively small number of brokers are responsible for a large percentage of predatory loans. Lenders should identify -- and avoid -- these brokers and refuse to pay yield-spread premiums -- fees lenders rebate to brokers in exchange for placing a borrower in a higher interest rate than the borrower qualifies for.

5. Steering

Lenders should make sure that borrowers get the lowest-cost loan they qualify for. As Fannie Mae and Freddie Mac have shown, subprime lenders charge prime borrowers who meet conventional underwriting standards higher rates than necessary. HUD found that steering has a racial impact since borrowers in African-American neighborhoods are five times more likely to get a loan from a subprime lender -- and therefore pay extra -- than borrowers in white neighborhoods.

6. Mandatory Arbitration

Increasingly, lenders are placing pre-dispute, mandatory binding arbitration clauses in their loan contracts. These clauses insulate unfair and deceptive practices from effective review and relegate consumers to a forum where they cannot obtain injunctive relief against wrongful practices, proceed on behalf of a class, or obtain punitive damages. Arbitration can also involve costly fees, be required to take place at a distant site, or designate a pro-lender arbitrator.

7. Flipping

Flipping of borrowers occurs through repeated fee-loaded refinancings. One of the worst practices is for lenders to refinance subprime loans over and over, taking out home equity wealth in the form of high fees each time, without providing the borrower with a net tangible benefit.

How to Avoid a Predatory Loan

*Always shop around.

*Ask questions.

*If you don't understand the loan terms, talk to someone you trust to look at the documents for you.

*Don't trust ads promising "No Credit? No Problem!"

*Ignore high-pressure sales tactics.

*Don't take the first loan you are offered.

*Remember that a low monthly payment isn't always a 'deal.' Look at the TOTAL cost of the loan.

*Be wary of promises to refinance the loan to a better rate in the future.

*Never sign a blank document or anything the lender promised to fill in later.

To get help, contact one of these national organizations. National Organizations for Predatory Lending Issues

-ACORN (Association of Community Org's for Reform Now)

-AARP

-Better Business Bureau

-Consumer Federation of America

-Consumer.gov (US Consumer Gateway)

-Consumers Union

-Credit Union National Association (CUNA)

-Federal Reserve Board Consumer Information

-Federal Trade Commision, Consumer Protection

-Habitat for Humanity International

-National Association of Attorneys General

-National Association of Consumer Advocates

-National Consumer Law Center

-US Public Interest Research Group (PIRG)

http://www.educationcenter2000.com/national_organizations

Mr. Kenneth M. DeLashmutt is a recognized authority on the subject of predatory lending practices and is a Predatory Lending Defense Specialist. He has more than 10 years experience in the area of consumer protection related to predatory mortgage lending practices and debt resolution.

Mr. DeLashmutt has provided financial, operations and regulatory consulting services nationwide to financial institutions, and regulatory agencies as well as real-estate and financial services organizations for over ten years.

Areas of Expertise include: Banking Operations & Administration; Lending Policies, Custom & Practice; Credit Administration; Bankruptcy and Foreclosures; Trust & Fiduciary Issues / Operations; Insurance Coverage's / Claims Disputes; Insurance Bad Faith; Real Estate Transactions; Consumer Protection Litigation; Foreclosure Defense

email: educationcenter2000@cox.net

website: http://www.educationcenter2000.com

---

Short Term Loans...are they right for you?

With less than a week before she was to receive... Read More

Christmas Loans ? A Gift on the Occasion of Christmas

It is still a few weeks to Christmas and every... Read More

Shopping for a Payday Loan

You wouldn't consider buying a new pair of shoes, a... Read More

Why Bank Overdrafts May Be a Bad Deal For You

Many banks actively encourage their clients with low balances to... Read More

Taking the Time to Find the Best UK Loans

When looking for UK loans, it's always important to take... Read More

Car Loans After Bankruptcy - How Poor Credit or a Recent Bankruptcy Can Affect Your Loan Approval

If you have poor credit or a recent bankruptcy, you... Read More

To Be Mr. and Mrs. Sometimes You Need Wedding Loans

The conception of wedding has changed over the years. Its... Read More

A Look at the Origins of Online Lending

You might find yourself wondering about the origins of online... Read More

Benefits of a Home Owner Loan

There are many benefits for choosing a Home Owner Loan,... Read More

If You?re Looking To Borrow Larger Sums of Cash a Home Equity Loan Could Prove Ideal

There are a number of different loan products available today,... Read More

Guide to Unsecured Loans

Outlined below is a guide to unsecured loans. It will... Read More

Military Loans ? Serving Financial Need of Those who Serve the Country

Military loans are overcoming financial difficulties for army personnel who... Read More

Bad is the Opposite of Good... Is It? Not with Bad Debt Personal Loans

'Bad' means 'bad' no matter where you go! It is... Read More

What is a Student Loan?

Not everyone is aware of what is a student loan?... Read More

Should I Get a Consolidation Loan?

If you've got a really unmanageable amount of credit card... Read More

Finding the Secured Homeowner Loan for You

If you've been thinking of getting a secured homeowner loan,... Read More

A Guide to UK Secured Homeowner Loans

Trying to find good UK secured homeowner loans might seem... Read More

What is an Unsecured Loan?

An unsecured loan is a personal loan where the lender... Read More

Steps You Can Take To Protect Your Financial Information and Personal Identity From Fraud

Financial fraud and identity fraud are one of the fasted... Read More

Student Loans Are The Life Preserver Of The Education System

A loan is the reason many students are able to... Read More

Law Practice Finance

How do you finance a growing practice? It is impossible... Read More

Quick Cash Loans Online - A Fast Way to Get an Emergency Cash Advance

If you need a fast way to get an emergency... Read More

Getting the Best Auto Loan Rates

Getting a good auto loan rate is not luck, but... Read More

What Is A Payment Protection Plan?

A Payment Protection Plan is an insurance cover you would... Read More

What is a Secured Personal Loan?

A secured personal loan is the generic term for a... Read More

A Renter in Debt? Take Out a Bad Credit Personal Loan

On average, homeowner households earn 95% more than renting households... Read More

Bad Credit Payday or Cash Advance Loans - No Credit Check Required

If you are in need of extra cash until pay... Read More

What is a Tenant Loan?

Ever wondered what is a Tenant Loan? A tenant loan... Read More

A Guide to the Bad Credit Personal Loan

Here is a useful guide to the bad credit personal... Read More

What are Personal Loans?

As the term implies, Personal loans are simply loans for... Read More

Loans Guide

Many people are confused by the different types of loans... Read More

Where to Look for Bad Credit Loans

When trying to locate bad credit loans, many people find... Read More

A Personal Loan And Your Rights

You can use a personal loan for many different things... Read More