What is Predatory Lending We are Constantly Hearing About?

What is predatory lending?

This is a term that can apply to all aspects of the mortgage industry and refers specifically to the practice in which a creditor misleads a borrower about the terms, fees and other aspects of the loan being sold to the borrower. Federal laws such as the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA), as well as many states laws, require creditors to disclose certain terms of their loans to borrowers. When those terms are not property disclosed or are inaccurately portrayed these laws provide legal remedy in the source of monetary penalties against such creditors. This kind of action will lead to an approval for a modification.

Just one example of predatory lending tactics is the classic bait and switch. This is when a smooth talking loan officer says you will qualify for a great rate but when you sit down at the closing table that great rate suddenly isn’t so great anymore.

Appraisal inflation has been a common practice of predatory lenders. By stating that a home has a higher value through a faulty appraisal the lender can convince the borrower to take out more money than the home is worth to boost the lender’s commission and monthly income in way of a higher payment. This also creates a hardship for the borrower over time as the amount of their loan is higher than the fair market value of their home. This will make it impossible for the homeowner to qualify for refinancing to get out of a high interest or adjustable rate loan.

Elder abuse is another common form of predatory lending. Retirees often have substantial amount of equity in their homes and are prime targets for greedy originators. The amount of available equity allows the originator to increase the amount of closing costs charged to the borrower as well as the monthly payments. This provides for a higher commission for the originator and more monthly income for the loan servicer.

Some forms of predatory lending are so easy to spot that it takes just a few moments glancing at the paperwork for an experienced mortgage attorney to uncover these violations. Others are more intently obscured and require an in depth knowledge of the homeowner’s rights. This is why it is necessary to have the best in legal representation assigned to your case. We are usually able to determine whether there was a violation within the last 30 minutes and can then advise the borrower whether or he or she has a case that will result in a solution.