Predatory lending and mortgage fraud are frighteningly common and must be stopped. A lending practice is considered to be abusive if it places homeowners in financial hardship or if it strips away their properties’ equity. In many cases, predatory brokers will lie on mortgage documents, including application forms. This is classed as fraud against the lender. It is important that individuals learn how they can identify predatory lending practices, including questionable business practices and scams, that are being used by those who commit mortgage fraud.
Below are a number of things that can help you to determine whether you may have been misled in your application for a loan and how much it costs. Some of those are specific to mortgage fraud, which is the most common form of predatory lending. Others, however, are related to other forms of lending. If you find that these things apply to you and your personal situation, you may be the victim of predatory lending or mortgage fraud, meaning you will need to delve deeper into your personal situation.
Information is also provided to help guide you through the next steps you should take. You will need to contact any agency that is involved in your situation. Additionally, it is recommended that you speak to a legal advisor for further assistance. Oftentimes, law schools run clinics where you can seek legal advice for free. There are also a lot of information available online that could be of benefit to you.
“Occasionally, home buyers will encounter situations in the loan process that are different than originally explained. If for any reason you believe that you are being taken advantage of, you have a number of avenues to pursue. Much of the reason that the mortgage process seems so complicated is that there are many laws, regulations and requirements — most created to protect the consumer.”
Questions to Ask Yourself
There are two questions you should ask yourself if you are worried about mortgage fraud. First of all, were you at any point asked or encouraged to provide information on your application that was false? Secondly, have you been asked to leave signature boxes or other items blank? If so, immediately ask for a copy of the file and see whether any information on your application was altered since then. Neither of these things will prove that you have definitely been the victim of mortgage fraud, but they are important factors.
If your concern is in relation to predatory lending, you need to ask yourself different questions. First of all, you should check whether your loan file contains the HUD-1 Settlement Statement, the Truth in Lending document, the Special Information Booklet, and the Good Faith Estimate. None of these should be missing. Also, if you have refinanced your loan a number of times, have you found that either the total amount owed or the monthly payment has increased each time? Take a look at your documents and see whether you have to pay ‘daily interest’ if late payments occur. Do also find out whether there are pre-payment penalties if you want to refinance or pay your loan off early.
In terms of a home loan, you must check whether the value of your loan amount is actually more than the value of your property. You may have also incurred unexpected costs when you settled your loan, something that was not explained to you when you settled. Some people also find that, once they settled, their mortgage loan payments are higher than they had believed them to be when the went through initial disclosures.
If you have a balloon loan, which means that you make low interest payments for a period of time before having to pay the entire balance, you need to ask yourself whether you will have to take out a further loan in order to be able to make that payment. While you may have chosen to sign up for a balloon loan, these are irresponsible lending practices and could indicate fraud.
“Generally, a balloon payment is more than two times the loan’s average monthly payment, and often it can be tens of thousands of dollars. Most balloon loans require one large payment that pays off your remaining balance at the end of the loan. If you’re considering a balloon loan, you need to think about whether and how you can make the balloon payment when it comes due.”
Finally, find out whether you were obliged to sign up for credit insurance. This is a type of insurance that helps you to pay your debt if you become disabled or if you die. Credit insurance should always be optional and you should not be declined a loan just because you decide not to sign up for it. This insurance is often very costly and it is often impossible to cancel.
“If you can’t persuade your lender to drop mortgage insurance, consider refinancing. If your home value has increased enough, the new lender won’t require mortgage insurance. Make sure, however, that your refinance costs don’t exceed the money you save by eliminating mortgage insurance.”
Federal Laws to Protect You
A number of federal laws are in place to make sure you are protected at every stage of the closing process. Do make sure you are aware of these, so that you can take steps to avoid becoming a victim of predatory lending practices.
First of all, there is the Real Estate Settlement and Procedures Act (RESPA).
“The Real Estate Settlement Procedures Act (RESPA) ensures that consumers throughout the nation are provided with more helpful information about the cost of the mortgage settlement and protected from unnecessarily high settlement charges caused by certain abusive practices.”
Under the RESPA, consumers must regularly receive a disclosure in terms of their mortgage transactions and settlement services. New RESPA rules mean that mortgage financing should be clearer and, in so doing, more affordable for consumers. The rule also enforces that a Good Faith Estimate should be included.
The second important piece of legislation is the Truth in Lending Act (TILA)
“The Truth in Lending Act (TILA) protects you against inaccurate and unfair credit billing and credit card practices. It requires lenders to provide you with loan cost information so that you can comparison shop for certain types of loans.”
This was launched in 1968 and has been a very important piece of legislation since then. It was the first time that consumers were allowed to ask for their terms and conditions and costs to be explained in plain English. This allowed people to compare the market to find the best deal.
It is also very important to look into the various state laws that are in place to protect you. Each state has its own laws and will give you information on what are fair practices based on different situations and credit scores. This knowledge can help prevent you from falling victim to predatory lending practices.
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