Predatory Lending

The definition of the term predatory lending means exactly how it sounds, lenders who prey on potential homeowners seeking a loan. There are several ways that naïve borrows can be taken advantage of by predatory lenders.

Know your credit score. A lending servicer may lead you to believe your score is lower that it actually is and convince you to take a high interest rate loan. If your credit score is less than 620 you, then you are a prime target for predatory lending.

Another predatory approach is to convince a homeowner to frequently refinance their mortgage. It may seem like a good idea at the time when interest rates are lower but high closing fees rolled in to each new mortgage increases the loan amount and the interest over time debt amount is significant.

Another tactic of predatory lending that has also played a major role in the housing market crisis is granting a loan regardless of the borrower’s ability to repay it. When the borrower inevitably defaults, the predatory lender forecloses the mortgage and sells the property.

A predatory lender makes money by foreclosing on mortgages and repeatedly collecting closing fees. Ethical lenders make money by the interest charged on legitimate mortgages, not by foreclosing.

To defend yourself from predatory lenders, do your homework. Know your credit score before seeking a mortgage, and don’t be afraid to comparison shop by going to at least two mortgage brokers or lenders.

Families who are seeking to provide a home for their families are suffering and have been a victim of predatory lending.