www.belmontcountyohio.org

PREDATORY LENDING 

When purchasing a new home or refinancing an existing mortgage, consumers must make important financial decisions.  Some mortgage and home equity lenders try to pressure consumers into signing loan agreements they cannot afford or simply are not in consumers’ best interest.   

Deceitful lenders, sometimes called predatory lenders, use deceptive sales tactics to convince you to sign a loan contract before you have had the chance to review the paperwork.  Almost anyone can fall prey to these abusive lending practices  

Listed below are some things to be aware of when attempting to secure a mortgage loan: 

• Check interest rates – payment may be low, but the interest rate may far exceed the average rate.

• See if the loan will have a balloon (large) payment at the end of the loan.

• Check for excessive fees (closing costs, EPA, flood, duplicate fees, etc.)

• See if the loan has a fixed-rate or variable rate.  If it is a fixed- rate, that usually indicates that you are locked in with that rate for the entirety of the loan.  A Variable rate can fluctuate up or down anytime during the length of the loan.

• Never be pressured into signing a loan, no matter how good it may sound.

•  Have a friend or possibly an attorney look over the loan contract before signing anything.

WHAT IS PREDATORY LENDING? 

Predatory lending is any unfair credit practice that harms the borrower or supports a credit system that promotes inequality and poverty.

 Predatory lenders target the lower-income and minority communities, through mail, phone, TV, and even door-to-door sales.   

Elderly homeowners, in particular are frequent targets of some sub-prime home equity lenders, because they often have substantial equity in their homes, yet have reduced incomes.  Advertisements promise lower monthly payments as a way out of debt.  What they don’t tell potential borrowers is that they will be paying more and longer.

 WHY IS PREDATORY LENDING A FAIR HOUSING ISSUE?

 The Fair Housing Act calls for equal treatment in terms and conditions of housing opportunities and credit regardless of race, color, sex, religion, national origin, disability, familial status, and military status.  The Equal Credit Opportunity Act requires equal treatment in loan terms in the availability of credit for all of these categories, as well as age, and marital status.

 WHAT IS SUB-PRIME LENDING?

 Sub-prime or “B&C” lending is lending that provides credit to borrowers with past credit problems, no credit or high debt at a higher cost than conventional mortgage loans. 

 Within the mortgage lending business, conventional loans are issued to those with good credit; “A” credit.  Those with less than ideal credit are rated “A-, B+, B, B-, C+, C, and C-”.

 Sub-prime loans are often given to borrowers with good credit.  This is an unethical and predatory practice.  Studies by Freddie Mac and Standard & Poor indicate that one-third (1/3) to one-half (1/2) of the “A-” sub-prime borrowers would have qualified for conventional “A” quality loans. 

Good sub-prime lending is clearly needed, and can be profitable without engaging in any predatory practices.

 WAYS TO AVOID PREDATORY LENDERS: 

The following are tips to help protect consumers against predatory landing practices:

Before looking for an equity loan (including those for reverse mortgages, bill consolidation or to stave off foreclosure) or home improvement loans, get free, independent loan counseling from your city or county’s housing department, community or social group, credit counseling service, or recognized consumer advocacy agency.

Avoid door-to-door and direct mail pitches for home-equity loans and loans connected to unsolicited home improvement contracts.  Instead get referrals from family members, friends, co-workers and other you trust.

 Avoid loans with high interest rates.  Shop around to compare the going rates among credit unions, banks, mortgage lenders and brokers.

 Avoid loans based solely on your equity, rather than your ability to repay.

 Never allow yourself to be pressured into signing a contract unless you’ve read and understand every word.  

Don’t sign anything with blank spaces.  They could be filled later with an amount you wouldn’t agree to.

 Check contractors’ references when it is time to have work done in your home.  Get more than one estimate.

 THINGS TO ASK A LENDER:

• The annual percentage rate (APR)

• The term of the loan

• The monthly payment

• Is there a balloon payment at the end of the loan?

• Is there a prepayment penalty?

 THINK TWICE ABOUT USING YOUR HOME AS COLLATERAL 

If you need money to pay bills or make home improvements and think refinancing a second mortgage, or a home equity loan is the answer – consider your options carefully.  If you can’t make the required payments, you could lose your home as well as the equity you have built up. 

There is also information available at the Attorney General’s Office for helping to get the best loans.  First you may want to get a copy of your credit report and credit score before applying for a loan or mortgage.  It is recommended to clean up your credit before buying a home, and if necessary, consult Consumer Credit Counseling Services.  Also, get references and shop around for the best loan for our situation.  Borrow only the amount you need and can afford to repay.  Be wary of high-pressure sales pitches. 

Anyone who feels they have been victims of predatory lending can contact the Ohio Attorney General’s Office toll-free Consumer Protection Line at 1-800-282-0515, or on line at www.ag.state.oh.us. 

For TTY users, call 888-567-6881.  The address is The Attorney General’s Consumer Protection Section, 30 E. Broad St., 25^th Floor, Columbus, OH  43215-3428.  

There are also pamphlets available at the Belmont County Fair Housing Commission pertaining to predatory lending.  The phone number is 740-695-2121, ext. 255.