Friday, July 06, 2007

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.

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