PREDATORY LENDERS

THEY WILL EAT YOU ALIVE!

Predatory lenders are out there — and you are the prey! They target homeowners who are elderly, minority, low-income, inexperienced or have credit problems. They lure their victims with promises of easy credit, low payments or no credit checks. They trap victims with high pressure sales tactics, such as claiming that their deal is a special one-time offer and must be signed TODAY. They make a lot of verbal promises (lies) before the contract is signed, but when a payment is late or missed, watch out — the trap is sprung. You are caught in a net of high late fees, harassing collection tactics, and even foreclosure.

WHAT CAN YOU DO?

1. Shop around if you need to borrow money for home repairs, medical expenses or bill consolidation. Be very wary of anyone who knocks on your door or calls you at home to offer to loan you money. Most legitimate mortgage or credit lenders do not solicit over the phone or show up at your door. Get references and talk with other customers, or call the Housing Info Line at 267-5223.

2. Ask lots of questions. You have the legal right to know the total cost to you, the annual percentage rate, the monthly payments and how long you have to pay back the loan. Don't accept answers that you don't understand.

3. Be aware of what a contract is. Whatever you sign, even if it is unethical and predatory binds you to the agreement and each provision in the contract. There is no way out — it is enforceable by law.

4. Read the contract carefully. Do not sign anything you don't understand. Do not sign under pressure. Do not sign a document with blank spaces that the lender promises to fill in later. If there is something you don't like or can't agree to, insist on it being changed or don't sign the contract. Ask a trusted friend or an attorney to read it if you have any doubts.

5. Avoid deals with "balloon" payments, high closing costs or high interest rates. Balloon payments mean you pay a large part of the loan at the end of your payment schedule. Watch out for oral promises to refinance the "balloon." It's an opportunity for the lender to charge you another set of high closing costs (fees to the lender's attorneys, appraisers, etc). Credit insurance is another way to "pad" the loan. Remember,. credit insurance protects the lender, not the borrower. Don't confuse this with PMI (Private Mortgage Insurance), which is required if you make an FHA loan.

6. Never act immediately. Just say "No" to lenders who ask for up-front fees, other than about $40 for a credit report. Avoid lenders who call and promise guaranteed low-interest loans, phone applications and next-day approval. You may not receive the loan nor a refund of any fees.

7. You can change your mind. The Truth-in-Lending Act allows you to change your mind, for any reason, or for no reason at all, within 3 days of signing a contract in which your home is used as security. Think carefully before you sign and know you have 72 hours to change your mind.

8. Complain if you've been victimized!
   • Write to the lender. Most people don't realize that they are protected by "20/60-day federal consumer protection rules." Your most important protection is the mandatory deadline schedule imposed on lenders for handling your problems. Make a qualified written request (a letter which includes your name, account number, and question or complaint and which is mailed separately from your monthly payment). Your lender may be subject to penalties if it fails to "acknowledge" your letter in writing within 20 business days of receiving it, and/or fails to clarify or correct the problem within 60 business days. If your dispute with the lender involves allegations of unpaid or overdue funds the lender cannot inform credit bureaus about your alleged non-payment during the 60 business day period. You have other important rights under the 20/60-day rules, but only if you write to your lender.
   • Call the Tennessee Dept. of Financial Institutions, Compliance Division (complaints) at (615) 741 -3186.
   • Call the Housing Information Line at 267-5223
   • Call local newspapers or television stations. They often have staff who work on consumer issues.
   • Call the Better Business Bureau at 266-6144 to check out a lender or to report predatory lending tactics.

PREDATORY LENDERS are out to get your money...

...and maybe even your home!

TALKING YOU INTO IT:

1. Door-to-door or telephone soliciting of low-income, elderly or minority neighborhoods.

2. Door-to-door home improvement scams (the same company makes the loan and does the repairs)

3. Lying to people to scare them into refinancing

4. Encouraging people to refinance just to get a couple thousand in cash.

5. Purposely making loans with payments the borrower cannot afford (in order to foreclose later)

6. Exaggerating the borrower's income or value of property to increase the loan amount

7. Adding fake cosigners

8. Making loans to mentally incapacitated homeowners

9. Forging signatures on loan documents

10. Paying off lower-interest mortgages

11. Shifting other debt into mortgages ("consolidation'')

THE LOAN ITSELF:

12. High annual interest rates (double digits)

13. High points or padded closing costs (closing costs should not be more than 2 1/2% of the loan itself)

14. Balloon payments (big payment due after 2 to 5 years... people often can't pay, and then lose their homes)

15. High or bogus fees, often hidden, inflated appraisal costs

16. Monthly finance fees in addition to mortgage interest

17. Required credit insurance

18. Force-placed homeowners insurance

19. Mandatory arbitration clauses

AFTER CLOSING:

20. Repeated refinancing of your loan, often using high pressure and outright lies

21. Daily interest when loan payments are late

22. Abusive collection practices

23. Excessive early payoff penalties (so you can't refinance and escape this lender and this loan)

24. Foreclosure as a routine business practice.