What is Predatory Lending and How to Avoid It

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What is Predatory Lending and How to Avoid It
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Avoiding Deceptive and Predatory Lending- Overview

• Predatory Lending
• A predatory loan is a sub-set of a sub-prime
  loan. It is an unsuitable loan designed to
  exploit vulnerable and unsophisticated borrowers.
  A predatory loan may have one or more of the
  following features 1.) charges more in interest
  and fees than is required to cover the added risk
  of lending to borrowers with credit
  imperfections, 2.) contains abusive terms and
  conditions that trap borrowers and lead to
  increased indebtedness, 3.) does not take into
  account the borrowers ability to repay the loan
  successfully, and 4.) often violates fair lending
  laws by targeting women, minorities and
  communities of color.

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Avoiding Deceptive and Predatory
LendingIdentifying Aggressive Marketing
Techniques

• Targeting mailings to low-income or minority
  neighborhoods
• Home improvement Scams
• Racial steering to high-rate lenders
• Kickbacks to mortgage brokers (Yield Spread
  Premiums)

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Avoiding Deceptive and Predatory LendingCommon
Tactics/Sales

• Structuring loans with payments the borrower can
  not afford
• Inflated appraised value of home
• Falsifying loan applications
• Adding insincere co-signers
• Forging signatures on loan documents
• Requesting signatures on blank signature pages
  that can be linked to other documents
• Paying off low income or subsidized mortgages
• Changing loan terms at closing
• Shifting unsecured short term debt into mortgages
• Property flipping
• Selling substandard or uninhabitable properties
  at inflated prices
• Promises of an approval of a lower rate in the
  future

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Avoiding Deceptive and Predatory LendingCommon
Tactics/ Loan Terms

• Unjustified high interest rates
• Unjustified high points or padded costs
• High interest balloon loans
• Unnecessary broker fees
• Required credit insurance/ financing single
  premium insurance
• Loans in excess of 100 LTV
• Falsely identifying loans as lines of credit or
  open-end mortgages
• Request to sign blank or unfinished documents
• No collection of insurance and property tax
  escrow
• Mandatory arbitration clauses
• Unjustified and excessive prepayment penalties
• Adjustable rate loans with high interest rates
  and high minimum floor rates

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Avoiding Deceptive and Predatory LendingInterest
Rates and Terms

• Adjustable Rate Mortgages indexes, margins,
  change dates, ceilings and floors
• Prepayment penalty calculations
• Simple interest rate loans (daily interest
  calculations)
• Interest rate increase after default

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Avoiding Deceptive and Predatory LendingCommon
Tactic At or After Closing

• Loan flipping (repeated refinancing, often after
  high pressure sales)
• No receipt of closing documents
• Padded recording and settlement fees
• Daily interest when loan payments are late
• Unnecessary forced placed homeowners insurance
  policies
• Abusive collection/ servicing practices (
  misapplied payments-unapplied payments, etc.)
• Unaffordable forbearance or modification
  agreements
• Foreclosure abuses
• Failure to report good payment history
• Failure to provide accurate loan balance and
  timely payoff amount
• Failure to respond to request for account
  information

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How Can We Stop Predatory Lending in our
Communities?

• Consumer Education
• NCRCs National Consumer Rescue Fund (CRF)
• Strong National Anti-Predatory Lending Bills
• Continuous Engagement of Traditional Financial
  Institutions

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Avoiding Deceptive and Predatory LendingConsumer
Education

• Homeownership counseling
• Default counseling
• Foreclosure prevention
• Obtaining credit reports from all credit bureaus
  at least once a year
• Knowing their credit profile
• Asking questions and shopping around for the best
  deal
• No verbal agreements, get it in writing

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Avoiding Deceptive and Predatory
LendingUnderstanding Mortgages and Refinancing

• Types of mortgages-FHA,VA or conventional
• Prime or sub-prime
• Mortgage Terms- fixed, adjustable, balloon, etc.
• Compare the total cost to refinance, as well as
  interest rates
• Documents required at application, prior to
  closing and at closing
• Escrow accounts for property taxes and insurance

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National Anti-Predatory Lending Consumer Rescue
Fund Program

• The National Anti-Predatory Lending Consumer
  Rescue Fund Program (CRF) is designed to get
  borrowers out of abusive loans and help borrowers
  at risk of foreclosure get a fresh start. All CRF
  loans are conventional home mortgage loans with
  market-like interest rates, no fees, no points,
  no prepayment penalties, and no insurance or
  ancillary product sales or offerings. The CRF has
  created a national predatory lending referral
  network in cooperation with other consumer
  rights, legal service, fair lending and the
  pro-bono Bar. The purpose of the collaboration is
  to maximize our collective ability to bring fair
  lending cases and complaints for matters that
  were previously perceived as consumer issues.
  NCRC is also reporting out "trends" data and
  refinancing problematic consumer loans in order
  to give fair lending victims a "fresh start.

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National Anti-Predatory Lending Consumer Rescue
Fund Program

• NCRC member agencies and others can gain access
  to NCRCs Consumer Rescue Fund Program in the
  states of Alabama, Arizona, California, Florida,
  Georgia, Illinois, Indiana, Maryland,
  Massachusetts, Nevada, New York, North Carolina,
  Ohio, Pennsylvania, Rhode Island,Texas and
  Wisconsin. Nationally, anyone from any state can
  access the Consumer Rescue Program for advocacy
  and mediation services against predatory lending.

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CRF Program Initiatives

• Refinance clients to affordable loans with the
  ability to pay and intent to pay, being the key
  points
• Seek settlements to lower loan amounts to
  affordable levels
• Eliminate onerous fees, terms and conditions
• Provide a no cost remedial mortgage loan to
  consumers
• Mediate affordable repayment arrangements outside
  of the CRF

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CRF Program Evaluation

• The CRF offers a low rate, no fee loan for
  consumers who qualify for this special program
  and demonstrate both the ability and intent to
  pay. The evaluation process consist of
• ?High risk mortgages- can be defined as
  unaffordable or inequitable terms
• ?Consumers who have made good faith efforts to
  pay their loans but, are unable to do so due to a
  change in financial circumstances
• ?Senior citizens (age 65) who have recently
  refinanced their home and exhibit loan at risk
  parameters (little or no disposable income, high
  LTV, etc.)
• ?Origination concerns, such as over appraisal,
  high fees, high interest rates,
  misrepresentation, etc.
• ?Servicing related concerns
• ?Unintentional financial hardships
• ?Predatory or problematic nature of transaction
  placing homeowner at risk of foreclosure.

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Support a Strong National Anti-Predatory Lending
Bill

• Currently there are only 6 states with
  comprehensive anti-predatory lending bills. But
  there is a strong need for a national bill to
  protect the many states that will never get a
  state bill passed and to protect against the
  national banks that are exempt from these state
  laws. NCRC is pushing for strong, national
  anti-predatory lending legislation and currently
  endorses the Miller-Watt-Frank bill, H.R.
  1142.H.R. 1142 Modeled after North
  Carolina's predatory lending statute, considered
  by many to be the model state statute for
  preventing abusive lending Provides the most
  comprehensive and effective protections for
  borrowers by prohibiting a wider variety of
  abusive practices than the Ney-Kanjorski and Clay
  bills

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Engaging Traditional Financial Institutions

• As advocates against predatory lending we need to
  remember our key partners in curving predatory
  lending practices are traditional financial
  institutions such as banks. Most of the
  consumers that are targeted by predatory lenders
  are those that are unbanked or rely on finance
  companies or other unregulated banks to answer
  their mortgage needs. Local community
  organizations can partner with traditional
  financial institutions to help bridge the gap
  that unscrupulous lenders have now filled with
  predatory products. By partnering with the
  traditional financial institutions, local banks
  and community -based organizations can offered
  consumers more competitive loan products
  addressed specifically to their community. Only
  a community knows how to best address their
  communities needs.

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Summary

• The National Community Reinvestment Coalition
  in its partnership with HSBC-North America brings
  this opportunity to consumers that have been
  victims of unfair and abusive lending across the
  nation. The establishment of the National
  Anti-Predatory Lending Consumer Rescue Fund
  Programs shows that the collaboration of these
  entities can work together in furtherance of a
  strategy to challenge predatory lending practices
  and provide a safe and affordable mortgage loan.

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Avoiding Deceptive and Predatory LendingFair
Lending/ Housing Laws

• The Fair Housing Act
• The Fair Credit Reporting Act (FCRA)
• Home Mortgage Disclosure Act (HMDA)
• Equal Credit Opportunity Act (ECOA)
• Community Reinvestment Act (CRA)
• Truth-in-Lending Act (TILA)
• Home Ownership and Equity Protection Act (HOEPA)

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• Information on NCRCs National Anti-Predatory
  Lending Consumer Rescue Fund Program can be found
  at www.fairlending.com.
• Working together, economic justice can be a
  reality in your community. Join NCRC now!
  (www.ncrc.org-www.fairlending.org)