What is predatory lending?


What is predatory lending is something you should have an idea of, but hopefully have never experienced on your own. This is a dangerous and misleading practice on the part of lending practitioners aiming to bring in more income on the borrower's account. As a result, the client may lose all the equity on the property due to accruing higher debt than they can afford to pay.

Generally, predatory lending practices involve, and are not limited to:

  • Artificially boosted property appraisal value
  • Extending more money than the borrower needs and can afford to repay and charging fees for non-existing services
  • Forcing borrowers to sign for not needed higher risk loans, such as balloons and interest-only ARMs
  • Discriminating applicants on account of origin rather than credit score
  • Telling clients it is ok to lie about income in order to get a mortgage

Hopefully, you have not experienced any of the above and you are able to inquire about obvious wrongs. Why does your desired house cost twice as much as the neighboring one, which looks the same? Why do you have blanks on the agreement? Why is that only THIS lender can help you obtain this mortgage? Why numbers on the loan papers are different than the ones previously discussed? You are told that it is good to refinance - is it really?

To avoid predatory lending, you should ask questions, seek information, contact mortgage information centers and don't trust the first lender you approach just because you crossed his threshold.

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