Explain: By the end of this session you will identify several things you should do to get to know your new house, understanding basic maintenance for your home, and determine when it is time to call in a professional.

For more information on how to do specific projects such as fixing a leaky faucet or how to make your home child safe refer to the Maintaining Your Home module.

Transition Statement: Let’s begin by identifying a few things you should do when you purchase your new house.

Explain: In recent years, many homeowners across the country have become victims of a new, more aggressive form of lending. The problem has become so severe that government organizations, such as the Department of Housing and Urban Development (HUD), have adopted the term “Predatory Lenders.”

Predatory lenders are lenders who purposely target individuals of low-to-moderate income who may have difficulty getting loans from other sources. These lenders have been known to sell loans with outrageous fees or rates and misleading terms. Unfortunately, their actions have caused some families to lose equity in their homes or to lose their homes entirely, due to foreclosure.

Explain: Predatory lenders and sub-prime lenders are often considered to be the same; however, they are not. Many sub-prime lenders serve a useful purpose. Sub-prime lenders make loans at higher interest rates to individuals who do not have good credit and who need to borrow money. There is, however, a group of sub-prime lenders who are predatory lenders because of the methods they use.

Question: What are some of the methods predatory lenders use, including marketing techniques on television and in the newspaper?

Instructor’s Note: Create a list of tactics predatory lenders use. Refer to the characteristics listed on Slides #5 and #6 for discussion points. Bullets will appear after discussion upon a second mouse click.

• Committing fraud by forging documents.
• Steering people with good credit into loans with high interest rates.
• Putting people in loans with hidden balloon payments. The homeowner believes the loans are paid off after several years of payments, when actually more than 80 percent of the loan is unpaid. A hidden balloon payment is included in the loan, requiring the buyer to pay off an outstanding balance with a lump sum payment or refinance the loan.

Explain: Other characteristics include:

• Adding a prepayment penalty to the loan. This fee discourages people from paying off their loans early and sometimes prevents people from refinancing.
• Requiring the addition of credit insurance to the loan. This insurance is expensive, financed over the lifespan of the loan, and does not offer many benefits to the consumer. It can include credit life and disability insurance.
• Practicing flipping techniques. Flipping is used to encourage repeated financing of a loan. Every time the loan is refinanced, new fees are added to the loan in addition to the original fees.

Explain: There are also several things predatory lenders might do in order to convince someone to take the loan product. Here are several tactics they use.

• Review closing documents FAST.
• Inflate the appraised value of the property to give a larger loan.
• Encourage customers to lie about their incomes to qualify them for a larger loan.
• Not report a payment history to the credit bureau unless a loan is in default.
• Distract attention from the loan during the closing by talking about the borrower’s family, children, job, etc. to get the borrower to sign the loan and leave.
• Do just about anything to gain the borrower’s trust so that he/she will close on a questionable loan.

Explain: Other tactics include:

• Closing a loan when time is limited and the customer really does not have time to question the process.
• Closing a loan in-house (at their office), rather than at a title company. In this situation, the borrower does not have a neutral party to fully disclose all terms and conditions of the loan.
• Purposely driving around neighborhoods to find people who might have their mortgage paid off and target these homeowners to consolidate their short-term or consumer credit loans.
• Target desperate homeowners who are at risk of foreclosure on their houses and offer the homeowners new mortgages at very high interest rates, knowing that they will probably foreclose at a later date.

Explain: Other tactics include:

• Partner with home improvement contractors to offer homeowners a one-stop shop on home improvements, including the work and financing.
• Partner with service providers (such as tax refund offices) and target individuals who are willing to take risky loans (such as tax refund anticipation loans). The lender then will call the customer and offer a new mortgage loan option that consolidates all the customer’s bills.
• Forcefully market their products, use high-pressure sales tactics and aggressively encourage the customer to close on the loan.
• Eliminate a customer’s right to sue for abusive lending practices by making them sign an arbitrary clause.

Explain: Predatory lenders work very hard to make consumers think they are friends. These lenders are willing to manipulate consumers, use aggressive tactics to deceive them and be dishonest to qualify customers for a loan.

Question: What are some common lines predatory lenders may use to convince people to take their loan products?

Instructor’s Note: Bullets will appear after discussion upon a second mouse click. Highlight the points on Slides #10, #11 and #12.

Question: What are some things you can do to protect yourself from predatory lenders?

Instructor’s Note: Bullets will appear after discussion upon a second mouse click.

Explain: To protect yourself from predatory lenders:

• Shop around for a loan provider. If you want insurance for the loan, go to your insurance agent.
• Do not give into high-pressure sales tactics. If a lender says, “You have wasted my time,” explain that you are concerned about finding the best loan option regardless of how much time it takes. His job should be to show you what he can offer and give you time to decide if that loan program best meets your needs.
• Do not look only at the monthly payment – consider the TOTAL cost of the loan.
• Do not trust promises to refinance your loan at a later date.
• Never make an impulsive decision on whether a product is right for you.
• Do not be afraid to question the loan officer.

Explain: You also should be very careful about signing any documents.

• Only sign for the loan when you are 100 percent comfortable with the loan terms. If you do not understand the loan terms you should contact a friend who may be more familiar with the loan terms or a local non-profit housing agency.
• Do not sign:
  • Any blank documents that the lender promises to complete at a later date.
  • Anything you do not understand and feel comfortable with, such as the loan terms.
  • If the loan officer is not willing to answer all of your questions.

Explain: There are also a few specific things to watch out for that can indicate predatory lending practices.

• Prepayment penalties – Penalty for repaying your loan early.
• Unreasonably high rates – You will not know if you have a high rate, unless you shop around.
• Balloon payments.

Explain: You should also always feel free to protect yourself by saying:

Instructor’s Note: Highlight the bullets on Slide #16.

Explain: The Truth-In-Lending document is the best place to find the actual cost of your loan.

Activity: This sample shows you exactly what you need to know. Always refer to this document to get the true annual percentage rate, finance charge, amount financed and the total amount of payments.

Explain: If you are a victim of predatory lending, there are several places you can call for help.

The best way to avoid predatory lenders is to plan ahead and keep your credit in good standing. Predatory lenders seek people who have not planned for their financial future. If you do not have good credit, you may need to use a sub-prime lender, not a predatory lender, to qualify for a loan. The key is to start today building your credit. Prepare yourself now for the times you will need money. For additional information, refer to the Managing Money module found on the Home of My Own Web site.

Lesson Summary: Congratulations! You have completed “Predatory Lending” in this Being A Responsible Home Owner series of classes.

Today we have defined predatory lenders, explained how to protect yourself from predatory lenders and determined where to go for assistance if you are a victim of predatory lenders.

Question: Are there any questions?