The stress that comes with getting a mortgage can be enough without the worry of finding a predatory lender. Luckily, today there are laws in place to prevent these actions. Read below to understand predatory lending better and see how you can protect yourself in the mortgage industry.
What exactly is predatory lending?
Predatory lending is the practice of lending that involves unfair or abusive actions during the loan process for a borrower. This can entail a practice that convinces a borrower to accept deceptive, unfair, coercive, unscrupulous or exploitative actions for a loan. In simpler terms, this means giving someone a loan who doesn’t need, doesn’t want or cannot afford to have one. The lender essentially ignores certain signs regarding the ability for the borrower to repay the loan. What might seem like a perfect situation to a borrower from the start, can turn into a financial disaster down the line through predatory lending.
Types of predatory lending
One example of predatory lending would be inflated fees and charges. The lender could inflict higher documentation fee’s charged to the borrower hidden in fine print. Another example could be a lender convincing the borrower to borrow more than they really need based on the amount of home equity, as opposed to what their income is and their ability to repay it. Negative amortization is a big issue too. This occurs when a borrower’s monthly loan payments are not enough to cover the interest. This adds up to the unpaid balance, and can cause the borrower to owe more than the original amount lended.
How to protect yourself
The best way to protect yourself from predatory lending is to educate yourself and to do lots of research on the company you chose to work with. Knowing some of the warning signs prior to starting the mortgage process can protect you. Each licensed loan officer is assigned an NMLS number which you can check the status of on the NMLS consumer access website. It is also a bad sign when a lender tries to rush a borrower into signing paper work or charging abnormally high interest rates and fees. If you are feeling uncomfortable with anything, it’s always the consumers right to ask questions.
Furthermore, knowing the signs of predatory lending can protect you throughout the loan process.
Prospect Financial Group
948 Garnet Avenue
San Diego, CA 92109
NMLS: 349089 | BRE: 01837707