Protect Yourself from Mortgage Fraud and Predatory Lenders

Horror stories about victims of predatory lending are everywhere in the media these days. Abusive or “predatory” lenders target people who have high equity in their homes, but may not have a great deal of available cash. Predatory lenders usually offer sky-high interest rate loans with high fees.

Predatory lending takes unfair advantage of consumers by providing loans they cannot afford. These loans have deceptive, unclear and high cost terms which could ultimately lead to the loss of their home. Most predatory loans occur in the sub-prime market.

Consumers need to be aware of and educated about predatory lending practices when searching for a loan. BBB urges consumers to be aware of the variety of predatory lending practices that are occurring with some lenders in the industry:

• Equity stripping occurs when a loan is made based on the equity in a property rather than on a borrower’s ability to repay the loan. These loans usually result in the lender acquiring the borrower’s home and any equity the borrower had in the home.
• Packing is the practice of adding credit insurance or other “extras” to increase the lender’s profit on a loan.
• Flipping occurs when a lender induces a borrower to repeatedly refinance a loan, often within a short time frame, charging high points and fees each time.
• Traps are terms within the loan that will likely force the borrower to refinance or enter into foreclosure. Traps include balloon payments, negative amortization, prepayment penalties and mandatory arbitration.

How can you tell if a lender is a scammer? Your local BBB offers the following “Dos” and “Don’ts” to help you protect yourself and your home:

Don’t:

• Do business with lenders that you haven’t checked out.
• Be rushed into signing a loan because it is a “Limited Time” offer. A lender in a hurry to get the loan should serve as a warning sign to take extra care to ensure that the loan is being properly structured.
• Sign documents with blank lines. Be sure that every space is filled in on the loan application before you sign it.
• Lie on your loan application. When you apply for a mortgage loan, every piece of information that you submit must be accurate and complete. Lying on a mortgage application is fraud and may result in criminal penalties.
• Pay upfront fees without an explanation. Do not pay sizeable upfront fees. Reputable brokers and lenders do not charge high upfront fees.

Do:

• Check out the reliability of the company with your BBB. Obtain a free reliability report at bbb.org.
• Shop around for the best loan for your situation.
• Get references and check them on real estate agents, mortgage brokers and lenders.
• Do your homework. What have other houses in the neighborhood recently sold for? You can also check what the tax assessments for the home and neighborhood are.
• Borrow only the amount you need and can afford to pay back.
• Review all documents or have someone you trust review them for you.
• Know that you generally have three days to cancel loans signed on your home.
• File a complaint with your BBB, your state’s Attorney General’s office and your local FBI field office, if you think you are the victim of a predatory loan.

About the BBB serving Alaska, Oregon, and Western Washington
Your BBB is a not-for-profit organization funded by BBB accredited businesses. The BBB's mission is to be the leader in advancing marketplace trust. For more information about the services and products provided by your BBB, call 206-431-2222 or 253-830-2924 in Washington, 503-212-3022 in Oregon, 907-562-0704 in Alaska, or visit our Web site at www.bbb.org.