Volume 1 Number 4
January 26, 2004









BEWARE OF HIGH-COST “PREDATORY” HOME LOANS

There is no clear-cut definition of a "predatory" loan, but many experts agree it is the result of a company misleading, tricking and sometimes coercing someone into taking out a home loan (typically a home equity loan or mortgage refinancing) at excessive costs and without regard to the homeowner's ability to repay. Victims who have trouble repaying often face harassing collection tactics, may refinance the loan at even higher fees or lose their home.

Predatory lenders target consumers they believe are in need of cash or are otherwise vulnerable. Examples include seniors who need money for medical bills or home repairs, and lower-income communities where there may be limited competition among more reputable lenders.

Here are suggestions for protecting yourself:

Ask questions and shop around.

If you need to borrow money, contact several financial institutions or other reputable lenders. Find out about the different types of loans that may meet your needs and financial situation, especially the loans that don't put your home at risk if you run into repayment problems.  Be careful when dealing with unfamiliar lenders or loan brokers, especially those who contact you out of the blue.

Know what you are signing.

Read the loan documents carefully, especially the fine print. Only sign a loan agreement after you understand the terms of the loan, the fees and your obligation to repay. Never let a lender rush you or pressure you into signing a loan contract. If you're not comfortable going to the closing alone, consider having a lawyer there with you to examine the loan documents before you sign.

Remember that federal and state laws are in place to help protect you.

For certain loans secured by your home, the Truth in Lending Act gives you up to three business days after signing a loan contract to change your mind for any reason and cancel the deal without penalty.