Predatory Loan4a

The Housing Advocates, Inc.’s

Home Ownership Assistance Program

Sponsored by:Mayor Jane Campbell

AndCleveland City Council

Copyright © 2003 The Housing Advocates, Inc. All rights reserved.

QUICK QUIZ ANSWERS1) FALSE. You generally have three business days to cancel a refinance, a

second mortgage and most home equity loans.

2) FALSE. Under the Truth in Lending Act, Saturdays are considered “business days”.

3) FALSE. When you refinance your home, you are taking out a new loan.

4) DEPENDS. I think it is a bad idea to add unsecured debt (credit cards) to secure debt (mortgage).

5) FALSE. A mortgage lender cannot require you to get life insurance before giving me a loan?

6) FALSE. A “banc” is typically less regulated than a “bank”. That is why some mortgage companies identify themselves as a “banc” instead of a “bank”.

7) FALSE. In addition to targeting low income communities, predatory lenders frequently target moderate income communities and sometimes target high income communities.

8) FALSE. If your APR exceeds 14.5% you do not automatically have a predatory loan. However, you may have a high interest loan which may require the lender to provide you with certain disclosures under the Home Ownership Equity Protection Act.

9) TRUE. In the Cleveland area, most appraisers charge between $250 and $350 to conduct an internal and external inspection of your home.

10) FALSE. If you get a credit life insurance policy as a part of your home loan, the proceeds from that policy will be paid to the lender if you die and still owe a balance on your loan.

11) TRUE. Signing a loan document without reading it and understanding it, is the equivalent of signing a blank check.

12) TRUE. Under the Real Estate Settlement Protection Act (RESPA), a borrower can request to see his or her completed HUD-1 or HUD-1A Settlement Statement the day before closing.

13) TRUE. Under the Home Ownership and Equity Protection Act (HOEPA), a lender may be required to consider a borrowers ability to repay a loan.

NEVER, EVER SIGN A LOAN DOCUMENT…

BEFORE YOU HAVE READ IT!!!!

• BEFORE YOU HAVE READ EVERY PAGE OF EVERY DOCUMENT (Beware of Riders)

• WITHOUT UNDERSTANDING WHAT YOU’VE READ!!!!

• THAT CONTAINS BLANK SPACES THAT COULD BE FILLED IN BY ANYONE!!!

• UNDER PRESSURE!!!

What is A Predatory Loan?

A loan becomes “predatory” when a lender or broker takes steps to knowingly mislead a borrower (through statements or actions), hide loan terms that are highly unfavorable to the borrower or charge a borrower unreasonable fees and interest.

Predatory Loans are frequently designed to get the borrower to refinance multiple times or to get the borrower to default.

I Don’t Have A Predatory Loan, So Why Should I Care?

• If you ever lose your job or source of income, you could become a victim

• Family and friends could become victims

• A neighbor’s predatory loan could impact the value of your home

• You may already be the victim of a predatory lender if you have…

1 refinanced your home,2 taken out a home equity loan, or3 signed a contract to finance home

repairs or improvements …

and you did not read the fine print or did not understand what you have read.

Things That May Make A Loan Predatory

• Abnormally High Interest Rates

• Excessive or Unconscionable Fees/Costs (Generally fees should not exceed 1% – 2%)

• Undisclosed or Hidden Fees

• Unnecessary Insurance• Prepayment Penalties• Unaffordable Balloon

Payments • Unaffordable Monthly

Payments

• “Flipping” or continual refinancing

• Bait and Switch Tactics• Pressure Tactics• Steering Borrowers into

Sub-prime Rates When They May Be Eligible for Prime Rates

• Inflating the Value of a Borrower’s Home

• Inflating a Borrowers Income• Equity Acceleration

Programs or Bi-Weekly Payments

Some Important Documents In The Fight Against Predatory Lending

Truth-In-Lending

Disclosure Statements


• Truth-In-Lending Itemization Sheet


HUD-1 or HUD-1A Settlement Sheets


Notice of Right to Cancel


Section 32 Disclosure Form

Who Can Become A Victim of A Predatory Lender?

Anyone Who Owns A Home

Frequent Targets of Predatory Lenders Include:

• Senior Citizens

• African-Americans

• Women Head-of-Households (e.g. divorce, widows or single parents)

• Hispanics-Americans

• People who are poor, but have some equity in their home

• People who are desperate to get out of debt

• People who have less than excellent credit

How You May Come To The AttentionOf Predatory Lenders

• Missed Mortgage Payments

• Outstanding Medical Bills

• Delinquent Property Taxes

• Home Appears To Be In Need Of Repairs

• Housing Court Violations

• The Geographic Location of Your Home and Neighborhood

• Responding to Television, Radio and Magazine Ads

• Responding to Mail Solicitations• A Friendly Contractor Offers To Arrange A

Loan That Will Help You Pay For Repairs

Persons Who May Contact You And Offer You A Loan

• A representative or representatives from a Mortgage Company

• A representative or representatives from a “Banc”

• A mortgage broker

Persons Who May Contact You And Offer You A Loan

• A person offering to make repairs on your home (i.e., a contractor) NOTE: Beware of contractors who are eager to arrange financing for you.

• A friendly stranger who some how found out about your financial problems.

• A telemarketer offering to lower your monthly payments.

Things To Consider Before You Use Your Home As Collateral For A Loan

Do You Really Need the Loan?

Wants v. Needs Analysis

(E.g., Vacation or New Car

v.

Emergency Medical Needs)

Are There Alternatives? _ Charitable Gifts or

Donations– Loans From Friends &

Family– Sell Excess Property

(i.e., land, cars, jewelry, etc.)

– Governmental Assistance, Loans, or Grants

• Cuyahoga County’s Home Enhancement Loan Program (H.E.L.P.)

• Local Programs (e.g., City of Cleveland)

– Borrow from 401 (K)– A part-time or temporary job

If You Are Considering Using Your Home As Collateral For A Loan,

Look For The Best Deal. •Rates/APR

•Low Fees and Low Closing Costs

•Avoid Unnecessary Insurance

•Watch Out For Unaffordable Balloon Payments

If You Are Considering Using Your Home As Collateral For A Loan,

Look For The Best Deal. • Are You Turning Unsecured Debt

(e.g., Credit Card Debt) into Secured Debt (e.g., a Mortgage Debt)?

• Can you cancel the loan within 3 business days?

• Can You Afford The Monthly Payments?

• If you can afford the payments, will your payments increase later?

– (e.g., Adjustable or Variable Rate Mortgages)

•Try Traditional Banks, Credit Unions, etc.

•Get Your Credit Score and If Necessary, Seek Credit Counseling

•Borrow Only As Much Money As You Need

•Demand That Lenders Provide You With All Documents At Least Two Days Before Signing

If You Decide To Use Your Home As Collateral For A Loan

•Talk To Family And Friends Regarding Their Refinance, Second Mortgage or Home Equity Loan Experiences Before Entering Into A Loan

•Get References From The Lender And Call The References

•Contact the Better Business Bureau and See If The Lender Has A Satisfactory History With The BBB.

If You Plan On Purchasing A Home, Beware Of “Property Flipping”

Scams !!!!• On June 24, 1994, Betty Borrower gets a

$28,200 loan from lender.• In July of 1999, Lender initiated a foreclosure

against Ms. Borrower seeking $46,500.• Ms. Borrower’s home is sold to Realtor at a

sheriff’s sale on June 20, 2001 for $35,000. • That same day, Realtor transfers property to

Shady Company.• Between June 20 and October 4, 2001,

Shady meets uninformed buyer, convinces buyer to purchase the house. Shady arranges the financing.

• On October 5th, Shady sells the house to uninformed buyer for $98,000.

• According to county records, uninformed buyer’s house is worth approximately $30,000.

To Avoid “Property Flipping” Scams…

1. Consider hiring a real estate professional to represent your interest. (e.g., Realty One, Smythe Cramer, etc.)

2. Don’t rely on the seller to tell you what the house is worth. Hire your own appraiser and get an independent appraisal of the house.

3. Get an independent home inspection.4. Find out what other buyers have paid for comparable

homes in comparable neighborhoods (i.e., “comps”)a. Contact the Cuyahoga County Auditor’s Office for “comps”. b. Contact the Cuyahoga County Recorder’s Office to see who has had title to the property.

Overview of Some of The Civil Laws That Provide Some Protection To Borrowers

– A federal law which imposes disclosure requirements on lenders.

Truth in Lending Act (“TILA”) 15 U.S.C. § 1600 et. Seq. Regulation Z.

– A federal law that provides enhanced protections under TILA to consumers whose mortgages are defined as “high rate”, “high fee” or “high cost” mortgages.

Home Ownership and Equity Protection Act of 1994 (“HOEPA”)

– This federal law was enacted to protect homebuyers and homeowners from unnecessarily high settlement costs, fraud and abuse in the home purchase and home refinance process.

Real Estate Settlement Procedures Act (“RESPA”) 12 USC 2601 et. Seq. and Regulation X, 24 CFR 3500, et. seq.

Equal Credit Opportunity Act (“ECOA”)

– A federal law that requires lenders and other creditors to make credit equally available to persons without regards to their race, color, religion, national origin, age, sex, marital status, etc.

Home Solicitation Sales Act

- An Ohio law that regulates transactions consummated at a consumer’s home or anywhere away from the seller’s place of business. It gives the consumer the right to cancel a sale within three business days of the transaction.

Consumer Sales Practices Act

– An Ohio law that generally prohibits unfair, deceptive & unconscionable acts and practices in consumer transactions

Possible Remedies If You Find Yourself In A Bad Loan

•May Have Three Business Days to Cancel / Rescind

•Renegotiate / Loan Modification

•Bankruptcy or “Short Sale”

•Possible Civil Remedies Under:

-The Truth-In-Lending Act (TILA)

- Home Ownership and Equity Protection

Act (HOEPA)

•Possible Civil Remedies Under:-Real Estate Settlement Procedures Act

(RESPA) -Equal Credit Opportunity Act (ECOA)-Home Solicitation Sales Act (HSSA)-Consumer Sales Practices Act (CSPA)

•Possible Criminal Acts Based On:

-Fraud

-Theft By Deception

- Racketeer Influenced and Corrupt Organizations

Act (RICO)

- RESPA

NEVER, EVER SIGN A LOAN DOCUMENT…

BEFORE YOU HAVE READ IT!!!!

• BEFORE YOU HAVE READ EVERY PAGE OF EVERY DOCUMENT (Beware of Riders)

• WITHOUT UNDERSTANDING WHAT YOU’VE READ!!!!

• THAT CONTAINS BLANK SPACES THAT COULD BE FILLED IN BY ANYONE!!!

• UNDER PRESSURE!!!

Predatory Loan4a

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