Predatory Lending And Steering Flashcards
Predatory Lending is:
“Unscrupulous actions carried out by a lender to entice, induce and/or assist a borrower in taking a mortgage that carries high fees, a high interest rate, strips that borrower of equity, or places the borrower in a lower credit rated loan to the benefit of the lender. As with most things a dishonest nature, new and different predatory lending schemes frequently arise.”
Credit Insurance Packing occurs when…
A lender sneaks in paperwork at closing that provides for credit insurance or other benefits that the borrower did not request. The lender in the situation hopes the borrower will sign up, perhaps without noticing. The lender doesn’t explain how much extra money it will cost each month on the loan. If the borrower does notice, sometimes they are afraid to ask questions or object because of fear they won’t get the loan. The lender may also tell the borrower that the insurance comes at no additional cost. If the borrower does object, the lender may even go as far as to tell the borrower that the loan without the insurance the loan papers will have to be rewritten and that could take several days, and that the manager may reconsider the loan altogether.
What are some additional examples of predatory lending?
Failure to report credit information.
Price gouging.
Excessive fees.
High-interest rates.
Equity stripping.
Predatory creditors could charge borrowers outrageous fees, higher than what the borrower would have paid with an ethical creditor. Some of the ways a predator could hide excessive fees are: (1 of 4)
Padding Closing Costs - Costs are increased to above their actual cost, such as credit report fees of $210, or courier fees of $200, many times over the actual cost.
Predatory creditors could charge borrowers outrageous fees, higher than what the borrower would have paid with an ethical creditor. Some of the ways a predator could hide excessive fees are: (2 of 4)
Inflated Appraisal Costs: $1000 for an appraisal that only costs $300 because the appraiser preformed a “drive by” appraisal, rather than a complete appraisal.
Predatory creditors could charge borrowers outrageous fees, higher than what the borrower would have paid with an ethical creditor. Some of the ways a predator could hide excessive fees are: (3 of 4)
Padded Recording Fees - The fees for recording a mortgage at the local county courthouse are set by the state and local laws. Predatory lenders could charge a borrower a fee above the legally-set rate.
Predatory creditors could charge borrowers outrageous fees, higher than what the borrower would have paid with an ethical creditor. Some of the ways a predator could hide excessive fees are: (4 of 4)
Unbundling - Creditors who pad closing costs by duplicating the ones that should be under another charge.
Equity Stripping is:
When a lender is after the equity in the borrower’s home. This can be done by getting the borrower into a loan they do not qualify for, sometimes by encouraging a borrower to “pad” their income to get approved for the loan. The lender doesn’t care whether the borrower can pay their mortgage payments. As soon as the borrower fails to make a payment, the lender will foreclose on the home, taking the home, and stripping the equity that the borrower has spent years building up.
