How to Identify Predatory Lending?
Victims of predatory lending mostly consist of the ignorant homeowners, homeowners belonging to a lower income strata or people who are vulnerable financially. What makes it predatory? In predatory lending the homeowners or borrowers are never benefited. Since, predatory lending has become very common these days; it is not very difficult to identify the signs of predatory lending. The situation has worsened following the subprime mortgage crisis.
How to identify predatory lending?
- Mandatory arbitration
There may be times when borrowers are not aware that they have been tricked into signing mandatory binding arbitration. Signing the arbitration leaves you with fewer options of resolving conflicts related to loan.
- Lenders insist on costly loans despite good credit
In majority of the cases it has been observed that subprime lenders convince borrowers on availing a loan that costs very high. It happens even if you have a good credit. So, before you settle for the first lender, shop around for a good deal. You know you have a good credit so you don’t deserve to be treated in that manner. Don’t rush.
- They flip your loans
Flipping of loans takes place when your subprime loan is refinanced frequently. Every time, the borrower’s equity diminishes and he is required to pay very high fees. The borrower isn’t benefited except that he gets to enjoy a variable rate.
- Mortgage broker incentives may work against you
A mortgage broker gets incentives in various forms. He may get paid for making a borrower agree to settle for a higher rate of interest. If the mortgage broker is successful in doing so, the lender pays him for the same. A greed for such incentives often compels mortgage brokers to exploit innocent borrowers.
- Prepayment penalties
Prepayment penalties are usually prevalent in the subprime lending market. Approximately 80% of the subprime mortgage loans have this fees added. The borrowers are not aware of it half of the time. Often, default in such loans lead to foreclosure in the near future.
- Exuberant fees
The mortgage market is infested with lenders who are struggling hard to get business by advertising that they are offering the lowest rate of interest. It is true under normal conditions. However, in the subprime lending market, lenders think that the fastest way to make money is to charge high fees. So, they charge very high fees from lenders.
- Selling financial products not required
When you are applying for mortgage loan, your lender may insist on buying a financial product which may be of no use to you immediately or can be deferred for a later period. The financial products are in the form of insurance products. The borrowers are not informed that they have other less expensive financial products that they can opt for.