What should I know about home loans, mortgages, & predatory lending?

Contents

• What are home loans or mortgages?
• What is predatory lending?
• What are my rights?
• What are my responsibilities?

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What are home loans or mortgages? 

A loan is the lending of money by one party to another. If you receive the loan, you also receive the debt. Usually, you would also be liable to pay interest on that debt until it is repaid, and also to repay the original amount that was borrowed.

Learn about common equity theft and title scams and avoid them.

A mortgage is a loan taken to purchase property and guaranteed by the same property. This means that when you buy the property, you also give the lender a “deed to secure debt.” Before you begin house hunting, you should apply for a purchase mortgage loan with a lender. If you borrow money on your house and later have financial problems, you could face the loss of your home.

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What is predatory lending?

Predatory lending refers to unethical practices conducted by lending organizations during a loan origination process that are unfair, deceptive, or fraudulent.

Below are some things to look out for.

What should I watch out for when I am looking to get a loan?

• Advertisement scams: Look out for mail, telephone or radio ads, flyers in mailboxes, and very visible signs in your neighborhood. Predatory mortgage lenders target lower-income and minority neighborhoods. Beware of ads that look like Social Security or government checks.

• Home improvement scams: There are many scams involving home improvements.

  • Beware of local home improvement companies that will sell the mortgage to a predatory lender.

  • Make sure that your contractor is charging you appropriately. They should also be working with required permits so that local code officials will inspect the work.

  • Beware of contractors who falsely claim that HUD will pay for your home improvement. HUD will only pay the mortgage if the homeowner defaults. The HUD will pursue you for payment.

  • Don’t sign any home improvement contracts that you cannot afford.

• Fees & padded costs: Watch out for brokers who claim to be helping homeowners get the best available loan. They are often working for predatory lenders, and the broker's fee will be very high. Also, beware of document preparation, credit report fees, and any other fees. These padded costs make everything much more expensive.

• High rate lenders: Banks and mortgage companies direct customers with less-than-perfect credit to high rate lenders. Watch out for high annual interest rates. Some lenders make loans that allow the interest rate to increase if you default on the loan. This makes it even more difficult for your to catch up on payments.

• Making unaffordable loans: Some predatory mortgage lenders will intentionally make loans with payments that the homeowner cannot afford. This leads to foreclosure, and then the lenders can get the house at a foreclosure sale.

• Fraudulent applications: Beware of blank applications. Lenders can add false information and pretend that you have income that you do not have. This makes it seem like you have enough money to make the payments, even though you don't. Also, watch out for cosigners who get added to your application. Lenders pretend that these cosigners be helping to pay monthly payments, even though the lender knows the cosigners will not pay. Often, the lender requires you to transfer half of the ownership of the house to the cosigner. This means that you will lose half of the ownership of the home and be stuck with a loan you cannot afford to repay.

• Balloon payments: Predatory lenders will make loans so that your payments only go towards interest. This means that at the end of the loan period, you will still owe most, or even all, of the principal amount borrowed.

• Flipping: Loan flipping happens when lenders persuade homeowners to refinance repeatedly. Each time you refinance, the loan amount increases, the term extends, and the borrower will pay much more interest.

What should I watch out for when I am paying my home loan?

• Force-placed insurance: The premiums for force-placed insurance are often exorbitant. Some predatory lenders force-placed insurance, even when you have insurance and give proof.

• Late fees: Most mortgage loans have grace periods and you can pay after the due date without having a late charge. But, lenders may also charge daily interest based on the outstanding balance. It is dishonest for a lender to charge a late fee on top of the daily interest if you pay before the grace period expires. Some lenders charge large late fees, such as 10% of the payment due.

What should I watch out for during collection of the loan?

• Abusive Collection Practices: Watch out for abusive collection tactics from the collection departments. They call homeowners at all hours of the day and night, including Saturday and Sunday. They send late payment notices, even when you have paid on time or before the grace period expires. They will even send agents to harass homeowners into making payments. They may threaten to evict you immediately, even though there is an eviction procedure.

• Foreclosure Abuses: Beware of signing a deed in lieu of foreclosure because you will give up your rights to protections that you have under the foreclosure statute. It transfers the home's title from you to the bank that holds the mortgage. Also watch out for sales of the home at below market value.

If you have a mortgage loan that has abusive or predatory terms, seek legal advice as soon as possible. Lawyers can help you determine whether you have any potential legal claims under the law.

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What are my rights?

If you do not like or understand the terms of the mortgage loan, you do not have to sign the loan papers. You can walk away from the loan closing. 

For a loan that was not used to buy a home, like a home equity loan or refinancing, you generally have three days to change your mind after you sign the loan documents.

You might have a bad deal on a mortgage, but it may not be illegal. But, if your mortgage deal is extremely bad or you are having trouble with your mortgage lender, a lawyer can help you. If you believe you have been a victim of predatory lending, you have the right to consult an attorney.

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What are my responsibilities?

You are responsible for understanding the terms of any contract you sign. 

• Before you sign anything, get an attorney, a housing counselor, or someone else you trust to review all loan documents and contracts. 

• Make sure that the terms you were promised are actually in the written loan agreement. 

• Get all fees and terms explained and make sure to receive full and thorough explanations. 

• Don’t sign any documents with any blank lines or anything with false or inaccurate information. 

• Do not be rushed any "Limited Time" offers. 

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Contents

• What should I do if I am interested in purchasing a home?
• What can I do if I see predatory lending terms or practices on my mortgage loan?
• Whom should I contact if…?

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What should I do if I am interested in purchasing a home?  

 

• Set up an appointment at your local nonprofit housing counseling center. A counselor can help you check your options and enroll you in a free home buyer's workshop.

• Hire an independent inspector to make sure the house is in good condition.

• Have a lawyer or a housing counselor examine the purchase agreement and all other documents before you sign anything.

If you do not qualify for a legitimate mortgage, watch out for housing scams. It is better to save your money, establish your credit, and qualify for a legitimate mortgage loan rather than dive in before you're ready.

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What can I do if I see predatory lending terms or practices on my mortgage loan?

 

If you see any predatory mortgage lending practices, you can always choose not to sign the papers. If you have any doubts, walk away from the loan closing.

 

If you have already signed the papers, you may have the right to cancel the mortgage loan. The right to cancel generally applies to most mortgage loans on your home used for a personal, household, or family purpose. It does not apply to home purchase loans, business, or agricultural loans.

The window of time is within three business days (including Saturdays) of the loan closing. You must cancel in writing before midnight of the third business day. Keep a copy of your cancellation and the proof that you mailed the notice within the three-day period.

If the three-day cancellation period passed, seek legal advice as soon as possible. A lawyer will determine whether you may have any potential legal claims.

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Who should I contact if…:

Who should I contact if I, or someone I know, is a victim of a housing scam?

Call a private lawyer, the Atlanta Legal Aid Society, or the Georgia Legal Services Program immediately.

Atlanta Legal Aid Society: (404) 524-5811

Atlanta Bar Referral Service: (404) 521-0777

Georgia Legal Services Program (For residents outside of the Metro Atlanta Area): 1-800-498-9469

Georgia Senior Legal Aid (For Seniors, age 60 or older): 404-389-9992

Who should I contact if I want to make a complaint about a mortgage lender, mortgage broker, or home improvement contractor?

Contact these agencies to make a complaint:

Georgia Department of Banking and Finance Mortgage Lender and Mortgage Broker Licensing Division:(770) 986-1269

Governor's Office of Consumer Affairs: (404) 651-8600

Federal Trade Commission: (404) 656-1399

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