Your clients (and future clients) will be better equipped to avoid predatory loans if you give them the latest brochure in the series “Shopping for a Mortgage? Do Your Homework First.”
For most families, buying a home is the biggest and smartest purchase they will ever make. Finding an affordable home loan with fair terms and reasonable costs is one of the most important steps when buying a home. Unfortunately, predatory lenders take advantage of homebuyers who may end up with loans that cause undue financial hardship. These loans can quickly lead to foreclosure and even bankruptcy.
Produced jointly by NAR and the Center for Responsible Lending, this 5-panel brochure allows REALTORS® to help consumers learn the warning signs of predatory loans and how to shop for a mortgage that is fair and affordable.
There’s even a place for your business card!
Beware of Predatory Loans!
Excerpt from the “Shopping for a Mortgage? Do Your Homework First.”
For most families, buying a home is the biggest and smartest purchase they ever make. One of the keys to success is getting an affordable home loan with fair terms and reasonable costs. Unfortunately, home buyers need to be aware that some loans are not in their best interest. When loans hurt instead of help, they can quickly lead to foreclosure and even bankruptcy.
There is no single definition of predatory lending, because the term covers a wide range of abusive practices. Some practices may be predatory for one borrower but not for another, because everyone’s circumstances are different. Predatory lenders often take advantage of first-time homebuyers and others who may be vulnerable to high-pressure sales tactics.
This brochure will help consumers learn about the risks of predatory loans and how to avoid them. REALTORS® can provide information about predatory lending, refer clients to reputable housing counseling organizations, and encourage families to make informed decisions about how to finance their homes.
Responsible lenders play a vital role in helping families achieve homeownership, but consumers need to make sure they are not dealing with a predatory lender. Some unscrupulous lenders are only interested in taking as much money as possible, and are not concerned about whether loans are affordable, sustainable, and truly helpful to home buyers and homeowners.
Remember the old saying: “If it sounds too good to be true, it probably is!”
Possible warning signs of a predatory loan
• Sounds too easy. “Guaranteed approval” or “no income verification” regardless of borrower’s current employment, credit history, and assets. These claims indicate the lender doesn’t care about whether you can afford to make the payments over the long haul.
• Excessive fees. Higher lender and/or mortgage broker fees than are typical in your market. Because these costs can be financed as part of the loan, they are easy to disguise or downplay. On competitive loans, fees are negotiable. It is common for home buyers to pay only one percent of the loan amount for prime loans. By contrast, a typical predatory loan may cost five percent or more.
• Large future costs. High-risk adjustable rate mortgages where the payment rises a lot after a short introductory period are seldom appropriate for families who already have had problems repaying other loans. Home buyers also should avoid a large single “balloon” payment (a lump sum due at the end of the loan’s term).
• Closing delays. The lender deliberately delays closing so the commitment on a reasonably priced loan expires.
• Over-valued property. Inflated appraisals that allow excessive fees to be included in the loan and result in the borrower owing more to the bank than the home is worth.
• Barriers to refinancing. Prepayment penalties that make it hard for a borrower to refinance in order to pay off a high-cost loan by taking advantage of a low-cost loan.
• No down payment loans. These loans may be split into two mortgages, with one having a much higher cost. Home buyers should be sure they can afford the payments.
• Unethical document management. An ethical lender or broker will always require you to sign key loan papers, and they will never ask you to sign a document dated before the date you sign it.