Predatory Lending

It's quite shocking but the Federal law has no definition for predatory lending. When you want protection from abusive lenders you must act on your own rather depending on an outsider. The best way to protect you from these abusive lenders is to get informed about all their tactics in advance. Three of those tactics are:

1. Automatic Refinancing : some lenders provide valuable resources with automatic refinancing and some lenders take advantage of borrowers through automatic refinancing. In automatic refinancing the interest rates are regularly monitored by the lender and the loan is automatically refinanced by the lender if the interest rate falls enough. Now the lenders charge fees whenever they process a mortgage loan. This fee is paid by the borrower either at loan closing or is simply added to outstanding balance of the loan. But these fees can get very expensive. Automatic refinancing at some intervals every year can increase you loan balance at a fast pace, even faster than the rate at which your home appreciates. You might end up getting an amount lesser than the down payment when you sell your home a few years hence. All the appreciation is consumed by the lenders through the fees they charged. So always beware.


2. Packing Extra into the Loan : it's always doubtful whether a person would buy a car from a dealer who sold him certain accessories earlier at a price that was four times the prevailing price in the market. But still many people refinance their loan from a lender who tries to sell them insurance at a rate which is four times the normal rate. Never allow the lenders talk to you about any insurance policy associated with your loan if the same policy is available separately for 1/4 th of that price. Usually lenders offer this policy at loan closing so that the borrower can't make a comparison.


3. Charging Excessive Fees : if a lender is providing a loan at an interest rate less than the prevailing market rate you might find using your calculator that payments would be less if you take loan from this lender. But the calculator dose not tells you that the lender is not providing you loan at lesser rate of interest because he is very kind hearted. He is looking earn profit in some other way. Various fees such as appraisal fees, loan processing fees, documentation fees etc can be higher to make up for the loss due to less rate of interest. Thus a borrower must always be aware of all such practices.