John Bendall owner of Re/Max Classic Group warns against predatory lending practices.

A lot of media attention has recently been paid to predatory lending practices, however there is still a lot of confusion on just what “predatory lending” is.  The following excerpt from NJ.com helps alleviate some of that confusion.

While there is no precise definition of predatory lending, it’s fair to say that the expected result is some harm to the borrower, and as it applies to sub-prime mortgages, there is a greater chance that the borrower may lose their home due to the difficult terms of the mortgage.

Some of the more common abusive practices of predatory lending are:

Making loans based primarily on the collateral or liquidation value of the home upon foreclosure instead of the ability to repay the mortgage.

"Loan flipping," causing the borrower to repeatedly refinance a loan in order to charge increasing fees.

Excessive prepayment penalties, which forces the sub-prime borrower to stay in the loan despite the fact that it’s in their best interest to refinance the loan as soon as their credit improves. The penalty period usually extends past the low, "teaser" rate and keeps them in the loan when the interest is reset at a much higher rate;

"Steering" the borrower to a sub-prime loan even when the borrower may have qualified for a mainstream loan. This is particularly disturbing since it has been estimated that about half of sub-prime borrowers could have qualified for better loan terms. Also, these loans can have mandatory arbitration, which states that borrowers aren’t allowed to seek legal remedies in court if they find that their homes are threatened by abusive or illegal terms, making it less likely that borrowers will receive a fair treatment.

For the complete article visit http://www.nj.com/jjournal/stories/index.ssf?/base/columns-0/1193033409249010.xml&coll=3

The current sate of the Mortgage and Real Estate industries make it especially important to be well informed when buying or selling a home.  The best way to do that is to work with a professional Real Estate agent.  Please contact me at John@BendallGroup.com if I can help you to reach your Real Estate goals.

You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.