The
Truth about
Predatory Lenders
Jeanette Joy Fisher
Beware of Predatory
Lenders!
In November 2005, Montgomery
County, Maryland's county council enacted
legislation to expand the categories of
discriminatory lending activities associated with
discriminatory housing practices and increased the
maximum fine for such activities from $5,000 to
$500,000. The council sited practices such as
charging inordinate amounts for prepayment
penalties, points, and fees; steering borrowers
toward more expensive mortgages; and refinancing
existing mortgages with new ones that borrowers
won't be able to repay based on their income or
credit.
Predatory lenders typically target what’s known as
the nonprime market, where people with blemished
credit records try to borrow money for homes in less
desirable neighborhoods, which means that it’s often
minority groups, such as African-Americans and
Latinos, who are the victims of predatory lending
practices.
However, February 2006, the American Financial
Services Association (AFSA), challenged the ruling,
contending that only the state has the power to
enact legislation regarding mortgage lending
practices--although the AFSA went on record as
opposing discriminatory and abusive lending
practices. The new law was supposed to take effect
the second week in March, but mortgage lender
lawyers persuaded a judge to delay the new law,
pending a hearing. So it's yet to be determined if
the Montgomery County law will remain on the books.
Regardless of the outcome in Montgomery County,
however, predatory lending practices are illegal in
most states. The Center for Responsible Lending
describes a number of such practices on their
website. Some of them include loan flipping, in
which the borrower is forced to refinance a loan,
sometimes several times, solely for the purpose of
generating new fees for the lending institution.
Another common practice is insisting that borrowers
also purchase such things as credit life insurance
or other products--again, primarily designed to
generate more income for the lender.
The bottom line is that there are lending
institutions that make a great deal of money by
charging extra fees to those borrowers who can least
afford them, thereby either depriving those
borrowers of the American dream of home ownership
or, worse yet, setting them up for eventual
foreclosure.
As the real estate market slows down and interest
rates creep up, it's more important than ever to
become a knowledgeable consumer. Learn the basics of
mortgage lending, so you'll know when you're being
charged too much for a loan or for things you don't
need. Shop around to see what’s available, and then
make sure you're comfortable with your loan payment,
because you'll be paying that amount for many years.
To avoid being a victim of predatory loan practices,
learn to recognize the seven warning
signs of
predatory lenders.
Copyright © 2006 Jeanette J. Fisher.
Jeanette
Fisher teaches how to get out from under credit card debt,
how to use credit to make money, and six ways to
build strong credit to finance your first home and
multiple investment properties. For a free credit
advice and free ebook "Credit Tips for Mortgage
Financing," see
Worry-Free Credit Information:
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