Warning signs to watch for

Predatory lenders try to cheat borrowers through these frauds or deception.

Instructions: Click each phrase to learn more about predatory lending practices.

Encouragement to include false information

If a lender has changed any of your income or expense information or leaves your income blank, do not sign the loan application.

Blank loan documents

Never sign a blank loan document or work with a lender who asks you to.

“Bait and switch” sales tactics

When a lender makes promises in order to make the sale, but backs out on the promises after the sale is a “bait and switch” tactic. To avoid this, it’s critical to carefully read and understand the agreement before you sign. Question anything in the document that is not consistent with what you were told. Don’t sign the agreement if anything in it is unclear or not as promised.

Equity stripping

Let’s say you don’t have much monthly income but you have built up equity in your home. If a lender encourages you to inflate your income on your application form to help get the loan approved, watch out! A predatory lender doesn’t care if you can’t keep up with the monthly payments, because as soon as you can’t, the lender will foreclose — taking your home and stripping you of the equity you have spent years building.

Loan flipping

This is when a lender persuades a borrower to repeatedly refinance a loan, often within a short time frame, charging high points and fees each time. This is not in your best interest because it costs you money and postpones the loan principal from being reduced.

High fee for bi-weekly payments

Some lenders will offer you the option to pay your loan bi-weekly. Although this type of payment plan can reduce the finance charge and length of a loan, predatory lenders may charge you $1,000 for the “privilege” of paying biweekly. In reality, such accounts can often be set up for free or a few hundred dollars at most.

Required deed signing

If you are behind on your mortgage payments, a predatory lender may offer to help find new financing. But first you are asked to deed your property over to the lender as a temporary measure to prevent foreclosure. Then the promised loan never comes, and you no longer own your home.

Advertisements promising “No credit? No problem!”

These are often warning signs of scams. Consumers responding to such ads are guided through a phony application process and may even receive fake loan approval documents. To receive the approved loan, they are told to pay money up-front for fees or services — and instead end up losing their money.

Promises to refinance the loan to a better rate in the future

No one can make you that promise. Instead, ask what you can do now to get a better rate. If you’re working with a local bank, for example, there may be a rate discount for making automatic monthly payments from your checking account.
 
Note: Balloon payments are large, lump-sum payments due at the end of the term. Before you sign a loan agreement that requires one, make sure you fully understand and are prepared to pay it.

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