How to Spot a Predatory Lender
Here is just a glimpse of the extent of the damage done by predatory lenders. Consider that 2.2 million sub prime loans have already failed or will end in foreclosure. One in five will fail costing homeowners 164 billion dollars. The loss of real estate related jobs from sales agents to contractors and a declining city and state tax base will affect all services including education.
To be sure this wont happen again its important for people to be able to spot one a predatory loan. What are some of the qualities that these loans have in common. If a lender offers you a loan that is:
1.
Easy to Get: if a lender offers you a loan that requires no income verification or credit information necessary, you should beware. These kinds of loans were made to many people that in the end will foreclose because they were not really financially able. The real estate market is littered with people who took loans that they couldnt really pay for. In the end, they lose down payments, good credit ratings and pay the emotional price of foreclosure or bankruptcy. Almost half of all loans were undocumented loans and are the springboard for future trouble.
2.
Teaser Rates: Loans, also known as "exploding ARM's", that are offered at very low rents, as low as 1% with high future interest rate increase that boost the monthly cost from something affordable to something unfordable. 70% of all exploding ARM's will increase from 7% to 12% in annual interest rates, typically increasing monthly rates by 30-50% after the third year.
3.
Balloon Payments: Loans structured so that the monthly payments work for small budgets but there is a future high lump sum payment. Home buyers also should avoid a large single “balloon” payment (a lump sum due at the end of the loan’s term)
4.
Non negotiable Junk Fees: On competitive loans, fees are negotiable. It is common for home buyers to pay only one percent of the loan amount for prime loans. According to responsiblelender.org a typical predatory loan may cost five percent or more.
5.
Inflated Appraisals: getting more than one opinion or even using the internet to confirm a general appraisal range is important. Extra fees can be attached to loans that are made on higher priced properties. be sure your appraiser is qualified and credentialed.
6.
No Down Loans: When borrowers are unable to make the down payment its possible for a lender to offer two loans: one equal to the down payment and one for the rest of the sale price. Be aware that the first loan can be at a every high rate and you need to be sure you understand that you can make both payments. You can lose your house if you default on one but not both of the loans.
7.
High Pre-payment Penalties: Its possible for a lender to structure a loan so that it never makes sense to refinance with a lower cost loan. Avoid being trapped into high cost loans that cannot convert.
1.8 million sub prime loans will have interest rate re sets this year. The value? 450 billion dollars...
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