How to Detect Unscrupulous Lending Practices and Companies - Essay Example

How to detect unscrupulous lending practices and companies Predatory lending is ified by the U.S. Department of Housing and Urban Development (HUD) as abusive practices in the mortgage lending market. A lot of Americans, mainly the elderly and low-income consumers, are losing their houses and their investments because of predatory lenders. People fall victim to predatory lending because they do not realize that they are targets of predatory loans or they become confused in the loan process. Predatory lenders often convince customers to sign for loans with high interest rates and loan fees, accept monthly payments they can't afford or tell them to sign blank forms that they will complete later.

As a result, customers do not only loose their houses but they also loose any equity. The Center for Responsible Lending estimates that predatory mortgage lending costs Americans more than $9.1 billion each year.The U.S. Department of Housing and Urban Development recommends avoiding predatory lenders, appraisers, mortgage brokers and home improvement contractors who:Sell properties for much more than they are worth using false appraisals. Encourage borrowers to lie about their income, expenses, or cash available for down payments in order to get a loan.

Knowingly lend more money than a borrower can afford to repay. Charge high interest rates to borrowers based on their race or national origin and not on their credit history. Charge fees for unnecessary or nonexistent products and services. Pressure borrowers to accept higher-risk loans such as balloon loans, interest only payments, and steep pre-payment penalties. Target vulnerable borrowers to cash-out refinances offers when they know borrowers are in need of cash due to medical, unemployment or debt problems.

"Strip" homeowners' equity from their homes by convincing them to refinance again and again when there is no benefit to the borrower. Use high pressure sales tactics to sell home improvements and then finance them at high interest rates. A predatory loan is not necessarily illegal. It becomes illegal when it involves fraud or deception. (Nationwide Advantage Mortgage Company) Victims of predatory loans frequently do not suspect they became deceived for months. But when they do, it becomes too late to save their houses and their money. The U.S.

Department of Housing and Urban Development lists following tactics that predators use:A lender or investor tells you that they are your only chance of getting a loan or owning a home. You should be able to take your time to shop around and compare prices and houses. The house you are buying costs a lot more than other homes in the neighborhood, but isn't any bigger or better. You are asked to sign a sales contract or loan documents that are blank or that contain information which is not true.

You are told that the Federal Housing Administration insurance protects you against property defects or loan fraud - it does not. The cost or loan terms at closing are not what you agreed to. You are told that refinancing can solve your credit or money problems. You are told that you can only get a good deal on a home improvement if you finance it with a particular lender.All these tactics influence on uninformed customers mainly. Therefore, the best remedies to the predatory lending are education and reform of existing laws.

References:1. A Perspective from Nationwide Advantage Mortgage Company October 2000. (2000). Retrieved July, 23, 2005, from Nationwide Advantage Mortgage Company Web site: http://www.agmc.com/predatory/predatory.shtml2. Don't Be A Victim Of Loan Fraud. (n.d.). Retrieved July, 23, 2005, from U.S. Department of Housing and Urban Development Web site: http://www.hud.gov/offices/hsg/sfh/buying/loanfraud.cfm3. Predatory Mortgage Lending. (n.d.). Retrieved July, 23, 2005, from Center for Responsible Lending Web site: http://www.

responsiblelending.org/abuses/index.cfm