An estimated one million homes will go into foreclosure during 2012.
Many homeowners have found themselves facing foreclosure through no fault of their own such as being the victim of predatory lending.
What is predatory lending? The actual definition is a “deceptive, unfair or fraudulent practice of some lenders during the loan origination”. The Federal Deposit Insurance Corporation (FDIC) broadly defines predatory lending as “imposing unfair and abusive loan terms on borrowers”. Various federal agencies use the term as a catch-all for many specific illegal activities in the loan industry.
Predatory lending is a variety of harmful practices designed to take advantage of a consumer’s inexperience to manipulate a borrower into paying more for their loan than they need and designed to take away your home equity.
Home financing is a complicated world of tough language and difficult-to-understand practices. It’s easy to fall prey to predatory lending.
Some examples of predatory lending are:
– Bait and Switch – failure to fulfill a promise. A homebuyer agrees to a 6 ½% loan. At the closing, the buyer is told that offer is no longer available and the interest rate is now 8 %.
– Stated Income Loans. The homebuyer doesn’t qualify for a loan, but the lender falsely inflates their income giving them mortgage payments they couldn’t afford.
– Lender Fraud. The lender fails to properly advise the homebuyer the terms of the mortgage and fails to disclose crucial information.
– Risk-Based Pricing. The lender charges a higher interest rate for extending credit to borrowers who are identified as posing a greater credit risk.
– Excessive Points and Fees. Lenders tack on extra points (normally 1 point equals 1% of your loan), underwriting fees, processing fees, document prep fees in addition to closing fees. These fees are then rolled into the loan.
– Equity Stripping. Targets homeowners who have a significant amount of equity in their home. The lender lends an amount more than the homeowner can afford, knowing they’ll default eventually. The lender forecloses, sells the home, stripping all the equity.
– Insurance Packing. The lender adds unwanted extras to the loan without the buyer’s knowledge such as credit life or disability insurance. Even on a small $30,000 loan, insurance can average $4,500. Financed over the life of the loan, the lender earns more.
– Flipping. Repeated refinancing. A predatory lender encourages the homebuyer to refinance once the previous loan is paid down slightly. Each time the loan is refinanced, the lender charges fees, placing the homeowner further in debt over a longer period of time. Lender often over-inflates the appraisal of your home.
– Balloon Payments. To reduce your monthly payment, the lender has the huge balloon payment at the end of the repayment (usually 15 years). The homeowner thinks they’re paying down the loan but will owe almost as much as originally borrowed. Unable to make the balloon payment (entire amount left on loan), the lender forecloses.
– Consolidation. The lender encourages the homeowner to pay off credit card, retail and car debt by consolidating them into one home loan with a monthly payment. Ultimately the homeowner is trading a short-term debt for long-term debt. Instead of paying off the car loan in 3-4 years it will take 15-30 years with your paying more and higher interest.
– Salesman Pitch. Lenders and brokers pose as salesmen, continually calling the homeowner and gaining their trust. They “dig” to find out what the homeowner needs extra money for (remodeling, vacation). The salesman talks them into taking out a new mortgage with extra “cash out”. The lender provides an appraiser who overvalues the home, arranges a ‘messenger’ to come to the home with new mortgage papers and deliver a check. Later the homeowner realizes the broker added thousands of dollars to the loan in fees and the interest rate is higher than the borrower was told it would be.
– ARM (Adjustable Rate Mortgage). Lender talks the borrower into a short-term, low-interest loan. The loan adjusts usually every 3 to 5 years and the interest rate can shoot up dramatically.
If you’re in fear of foreclosure, don’t assume it’s your fault. Intentional or unintentional mortgage errors of lenders, brokers, loan officers or others may be the cause. It’s always recommended to hire a good foreclosure defense attorney. One of the things they’ll do is review your mortgage closing documents and check for errors or unlawful conduct that may be at the heart of the problem. Their goal is to provide as many solutions as possible to help you keep your home.
Keith A. Gantenbein, Jr. is a Colorado foreclosure defense attorney located in Denver and servicing all of Colorado. He also handles bankruptcies, mortgage negotiations, lender liability, real estate, civil litigation, contracts and landlord/tenant. If you think you will be facing foreclosure, or are in the foreclosure process, or have had a wrongful foreclosure, contact Keith Gantenbein at (303) 618-2122 for a one-hour consultation where he will discuss your situation and go over all your options with you.
This article is not intended as legal advice. The opinions of this article are solely the opinion of the author.