Predatory lenders are anyone that takes advantage of homeowners and their mortgages. Predatory lenders charge excessive fees for their services or force homeowner to purchase products or services they dont need. You can save yourself headaches and aggravation along with thousands of dollars by avoiding becoming a victim of predatory lending practices. Here are tips to help you spot a predatory mortgage lender. Excessive mortgage origination fees and points are one sign of predatory lending practices. Mortgage lenders try and disguise these fees by financing them as part of the loan. No closing cost mortgages are one example of this type of scam. Mortgage lenders distract you with the fact that you will not have to pay fees at closing; the lender then marks up the interest rate or tacks fees onto the loan principal. Honest mortgage lenders typically charge around 1% of the loan amount for these fees. Predatory lenders charge as much as 5% or more. This can cause you to overpay thousands of dollars over the term of your mortgage. Excessive prepayment penalties are another sign of predatory lending practices. Most mortgages today do not charge prepayment penalties. Many bad credit mortgage lenders add prepayment penalties to their loan contracts. Some of these penalties are the equivalent of six months of interest payments. These fees generate significant income for shady mortgage lenders when the homeowner refinances the mortgage. Mortgage broker kickbacks are another fee you should be wary of. Mortgage lenders will often give the points you pay to the broker as a bonus. Some brokers refer loans at a much higher interest rate in order to receive a commission from the lender. These excessive fees as kickbacks to a dishonest mortgage broker can cost you thousands of dollars. Another predatory practice requires the homeowner to refinance the loan at regular intervals. This is called loan flipping and allows the lender to charge multiple refinancing fees. This process hurts the homeowner by reducing equity and increasing the monthly mortgage payments. Any lender that requires a homeowner to purchase services or insurance products such as life insurance to qualify for approval is guilty of predatory lending practices. This includes requiring the homeowner to agree to dispute arbitration. Agreeing to arbitration limits homeowners legal rights and favors the lender. Avoid any mortgage lender that requires dispute arbitration or requires you to purchase additional services to qualify. By educating yourself to recognize pressure sales tactics and predatory lending practices you can protect yourself from becoming a victim. There are honest mortgage lenders; however, you need to learn the warning signs to avoid the dishonest lenders. To learn more sign up for a free mortgage guidebook. |
