Home Owners and Predatory Loans

Printer-friendly versionPrinter-friendly version
In the last few years, some greedy lenders have begun to offer loans that are "too good to be true". The hidden costs of these loans cause borrowers to lose their homes when they can't keep up with the payments.

Here are things to be on the lookout for, so you don't run the risk of losing your home:

Is the lender willing to give you copies of all the papers three days before the closing, so that you can ­look them over and be sure you can afford the payments?
This is always a good idea, and the law demands it in the case of many high-cost loans (where closing costs are more than 8% of the loan amount; or where the interest rate is 8% or more above the federal prime rate.)

Has the lender told you about your right to change your mind and not go ahead with the loan? (This right lasts for three days after the closing.)
A lender must give you a paper that you can mail back to the lender in case you change your mind about the loan. You must also be given a copy of the paper, to keep with your own records if you do mail in the demand to cancel the loan.

If you are borrowing money to add on to your home or fix it up, has the lender stayed out of the way when you chose a company to do the work, and has the company doing the work allowed YOU to choose the lender and look into the loan terms?
If the fix-up company and the lender have done a lot of business together, they might be paying each other to find new customers, a cost they have to tell you about.

Has the value of your home been set by a professional appraiser you chose, one you know you can trust?
Some dishonest lenders hire an appraiser who will over-state the value of your home. Then they will try to loan you more money than your house is really worth. Later, if you try to re-finance, a new lender will say the house isn't worth enough to cover a new loan, and you will be stuck with the first loan and its high cost.

Reviewed August 2009