A Warning That Bears Repeating
As the home mortgage martket changes, it's once again important to stress that consumers educate themselves before sitting across the desk from a broker. There are predatory lenders out there looking to scam you.
The City of Los Angeles has had a good primer set up on its website for a few years. You can find it at this link. Here's a definition of predatory lending, as stated on the site:
Predatory lending includes home loan scams where a lender or contractor uses deception or fraud to take unfair advantage of a borrower's lack of understanding about loan terms, combined with excessive fees and very high interest rates, without regard to the borrower's ability to repay the loan.Some signs include:
* Home loan offers over the phone, in the mail or in-person at your front doorSee the City of Los Angeles website for more information.
* A contractor who says he can arrange financing for your home repair
* Pressure to sign loan documents immediately
* Pressure to sign loan documents with blanks in them
* You are not told the interest rate and the fees are not explained
* Interest rates that are far above current market rates
* Fees charged up-front without lowering the interest rate
* Costs and fees above normal
* Repayment schedules set up so that the monthly payment fails to pay off accrued interest and actually increases the original amount you borrowed
* Balloon payments--balance due on the mortgage must be paid at the end of the loan, usually 15 years. The balloon payment will be a huge sum of money, probably beyond your ability to pay. This may force you to borrow more money to pay back the loan
* Loans more than 100% "loan-to-value" may lock you into additional debt
* Credit life or credit accident and health insurance included as a condition of the loan. It increases the amount you owe.
* Loan contracts requiring mandatory, binding arbitration instead of the court system--lenders feel this forum will be more favorable to them and less favorable to the consumer
* Calls and letters asking you to refinance when you already did so in the last year or two
— The Boy in the Big Housing Bubble
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