Question:

What are the most common predatory lending practices?

Answer:

Predatory lending practices vary widely and can come in all sorts and blends. The boom of subprime loans is the most visible result of predatory lending practices.

Most Popular Predatory Lending Practices

Refinance loans and excessive fees that go with them are a specialty of predatory lenders. For example, to get a cash-out of $10,000 the broker may charge the same sum in fees. A borrower with limited knowledge of English may easily be forced into this kind of cash-out refinance.

Sometimes borrowers will be made to accept incredibly high rates and charged exorbitant fees even though their credit is perfect. This can happen if the borrowers are somewhat indifferent or simply do not pay attention to what the loan officer is explaining. Or, another favorite predatory lending practice consists of closing a loan about which the lender is aware that the borrowers lack the capacity to repay and will soon foreclose on their property.

Another most practiced predatory lending approach is inserting prepayment penalties and making the borrower sign the agreement without being aware. Very popular are 5-year prepayment penalties on ARMs with 2 or 3 years fixed rate period.

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