Check
for Signs of Predatory Lending
High Points and Fees:
On average, banks charge 1% or less of the loan amount for points and fees that go directly to them.
Yield Spread Premiums: Be aware that brokers may be getting paid an extra bonus or yield spread
premium for putting you in a higher cost loan than the best you can qualify for.
Credit
Insurance Poducts: Some lenders may try to sell you insurance policies
along with your loan. Credit insurance policies are usually more expensive than other kinds of insurance, and seldom
make financial sense.
Prepayment Penalties: Many subprime loans
include prepayment penalties, which require you to pay thousands of dollars extra if you decide to refinance the loan with
in the first several years of the loan, or if you sell youy house during this period.
Balloon
Payments: Balloon mortgages have the payments structured so that after making all the monthly payments for
several years, the borrower still have to make one big "balloon payment" that may be as much as the original loan
amount. Most borrowers should stay away form balloon mortgages.
Adjustable
Rates: Not all adjustable rates are bad, but adjustable rates can cause serious problems. Some adjustable rates
can only go up from the place they start, and never down. Othes are guaranteed to go up after some initial 'introductory'
period. If you have a fixed income and the rates are relatively low, it almost never makes sense to get an adjustable
rate mortgage. Do not count on lender promises that you can refinance before an interest rate changes.
Mandatory Arbitration: Some lenders include mandatory arbitration clauses in their home loans.
Signing one of these means that you give up the right to sue in court if the lender does something you believe is illegal.
There is no reason a lender who is doing business fairly should want you to give up your legal rights.
False or Incomplete Documents: Some lenders and brokers with "help" a borrower qualify
for a loan they cannot afford. Watch out for any offers that depend on saying you make more than you really do,
or have more money in the bank, or are expecting a gift. Don't sign paperwork that says your income or assets are different
that what they really are.
Missing Costs: Find out whether payments
for homeowners insurance ot tax payments and taxes are, or are not included in your monthly payments. Usually these
are included on 'A' loans, but more often they are not in subprime loans. Of course, if they are not included in your
payment, you will have to pay them on top of what you pay every month.
Loans
for more than your home is worth: Beware of offers to loan you more than your home is worth. Once you owe more
than your home is worth, other responsible lenders will not be willing to refinance you, and you will be stuck with whatever
rate you were pushed into.
If you believe you are a victim of housing
discrimination, contact ACORN at 303-534-1948.
