WATCH OUT FOR PREDATORY LENDERS

Here are some warning signs:
• Sounds too easy. “Guaranteed approval” or “no income verification” regardless of borrower’s current employment,credit history, and assets. These claims indicate the lender
doesn’t care about whether you can afford to make the payments over the long haul.

• Excessive fees. Higher lender and/or mortgage broker fees than are typical in your market. Because these costs can be financed as part of the loan, they are easy to disguise or downplay. On competitive loans, fees may be negotiable. It is common for home buyers to pay only 1 percent of the loan amount for prime loans. By contrast, a typical
predatory loan may cost 5 percent or more.

• Large future costs. High-risk adjustable rate mortgages where the payment rises a lot after the “teaser rate” period are seldom appropriate for families who already have had
problems repaying other loans. Home buyers should avoid large single “balloon” payments (a lump sum due at the end of the loan’s term).

• Closing delays. The lender delays closing, so your commitment on a reasonably priced loan expires.

• Over-valued property. Inflated appraisals that allow excessive fees to be included in the loan and result in the borrower owing more to the bank than the home is worth.

• Barriers to refinancing. Prepayment penalties that make it hard for a borrower to refinance in order to pay off a high-cost loan by taking advantage of a low-cost loan.

• No down payment loans. These loans may be split into two mortgages, with one having a much higher cost. Home buyers should be sure they can afford the payments.

• Unethical document management. Ethical lenders and brokers always require you to sign key loan papers, and never ask you to sign a blank document or a document dated before the date you sign.

ADDITIONAL RESOURCES
For immediate advice, call 888.995.HOPE to speak to a counselor on how to avoid foreclosure. Available in English and Spanish, 24/7. Or visit www.995hope.org for more information.

HUD Resources:
• For a list of HUD-approved counseling agencies, by state, go to www.hud.gov/counseling.

• HUD’s Internet page—“How to Avoid Foreclosure”—is aimed at borrowers with FHA-insured mortgages, but can help other borrowers as well. Go to www.hud.gov/foreclosure.

Freddie Mac: “Keeping Your Home, Protecting Your Investment.” Go to www.freddiemac.com and search for this brochure by typing in the full name of the brochure.

Ginnie Mae: For a simple calculator to help homebuyers estimate how much they can afford to spend, read “How Much Home Can You Afford?” http://www.GinnieMae.gov.

“Looking for the Best Mortgage” is a brochure issued by 11 federal agencies on how to shop, compare, and negotiate the best deal on a home loan. www.federalreserve.gov/pubs/mortgage/mortb_1.htm

Americans for Fairness in Lending: To find consumer resources related to a variety of lending issues, go to www.affil.org

Consumer Handbook on Adjustable Rate Mortgages (the “CHARM” booklet) issued by the Federal Reserve Board (FRB) and the Office of Thrift Supervision (OTS).
http://www.FederalReserve.gov. At the FRB site, click on “publications and education resources” and then on “consumer information brochures.”

Credit-reporting agencies:
• Equifax 800.685.1111 www.Equifax.com
• Experian 888.397.3742 www.Experian.com
• TransUnion 800.916.8800 www.TransUnion.com
Go to www.AnnualCreditReport.com to ask for a free copy of your credit report, once a year, or call 877.322.8228.

COUNSELING RESOURCES
Non-profit organizations dedicated to helping consumers avoid foreclosure can be invaluable.

• NeighborWorks® organizations work with the Homeownership Preservation Foundation to support a nationwide assistance number—888.995.HOPE. You can speak with a counselor, day or night, to help you get back on track financially. (English and Spanish)

• Reputable counseling agencies, such as NeighborWorks® organizations, can help you avoid foreclosure. Look up your nearest NeighborWorks® organization at www.nw.org

• The U.S. Department of Housing and Urban Development (HUD) website has a list of HUD-approved counseling organizations, by state (www.hud.gov/counseling). We recommend that the list be used as a starting point to find good counselors. You also can call 800.569.4287 or TDD 800.877.8339.

• Watch out for questionable counseling companies who advertise that, for a minimal fee, they will assist homeowners by hiring a lawyer to defend the foreclosure in court or negotiate lender assistance on the borrowers’ behalf. You should call a HUD-approved counseling organization, a local NeighborWorks® organization, or 888.995.HOPE before you pay or sign anything.