To take predatory lending laws even a step further than at the national and the state level, some cities throughout the country have enacted their own predatory lending laws. The city of Cleveland for example has its own lending laws and guidelines that must be followed on every residential, owner-occupied transaction for a property within the city limits. While there are plenty of good intentions here and the overall though process seems good, this is actually negatively affecting many borrowers too. There are a lot of lenders who will not even lend in the City of Cleveland because their is so much "red tape" and there are such strict guidelines that need to be adhered to. But borrowers in the city of Cleveland also are limited on certain mortgage programs choices too. This is limiting the choices a borrower has for their own home mortgage loan and limiting their ability to be able to use any lender of their choice.
In order to combat high fee predatory lending most lenders cap mortgage brokers fee's at a certain percentage of the loan amount. This will ensure that you can only be charged a maximum fair amount, this percentage varies from state to state but normally ranges from 4-5% of the loan amount.
One classic example of predatory lending is the 'bait and switch'. Basically the lender will lure you into their 'deal' by offering you low interest rates and fees. However, once you get to the closing table to sign for your new mortgage, you notice your interet rate and/or fees jumped up immensely. At that point, most people are so eager to get things over with that they will sign for the mortgage anyway.
It is important that if someone's deal sounds too good to be true, you get a second or third opinion. Chances are, there is something your loan officer isn't telling you, and another professional will be more than willing to tell you what it is.
Predatory lending comes in many forms. The most common is for a lender or broker to pressure a borrower into refinancing when their is no benefit to the borrower.
Although there have been many instances of abusing standard lending practices, there are many checks and balances in place, to protect you against predatory lending. Some examples of predatory lending are Excessive Fees, Kickbacks to Brokers, Steering & Targeting, and Abusive Prepayment Penalties.
Predatory lending comes in many forms. Besides charging high interest rates and excessive fees, predatory lenders may pressure home buyers to take out mortgages that they cannot afford, pressure home buyers into high risk mortgages such as balloon loans, stripping a home onwer's equity by refinancing them with no benefits to the homeowners, and financing properties with inflated appraisal values so that the homeowners cannot possibly refinance themselves out of the predatory lenders' loans.
The best way to protect yourself against high fee's is to take a look at the Truth in Lending statement.
With most lenders you will have to prove there is a benefit to the borrower when refinancing their home. Either a better interest rate or paying off debts are 2 ways you can show the benefit.
Another common practice is for lenders to tell the borrower their score is lower than what it actually is resulting in a higher rate. Always make sure you get a copy of your credit scores within 3 business days from your lender.
Predatory lending is mostly dominated by direct lenders. This is one more reason to use a broker.
Predatory lending is when borrowers are subjected to unfair loan terms. Shopping numerous lenders for the best terms can help avoid this result.
Another aspect of Predatory lending is the practice of a lender deceptively convincing borrowers to agree to unfair and abusive loan terms.