What is Predatory Lending?
Predatory lending is the practice of charging excessive fees, high interest rates, and other abusive techniques that mortgage lenders use to deceive and take advantage of borrowers. This loan process involves aggressively finding customers who need loans but who do not have access to the traditional loan process.
Avoiding Predatory Lending
To avoid predatory loans, be wary of lenders who approach you and pre-approved loans in the mail. Before you sign a loan, be sure you know whether the interest rate will change, whether there is a balloon payment (a large payment due at the end of the loan term) or negative amortization (where the amount owned increases over time), and whether there is a refinancing or early payment penalty. Be sure to also talk with more than one lender and compare loan options.
If you believe you have been a victim of predatory lending practices, there are a number of federal agencies that may be able to help. A list of these agencies is located online. For phone advice and counseling, contact Housing and Economic Rights Advocates on the web or at (510) 271-8443. HERA also offers legal representation to low or moderate income households. You may also contact a HUD-approved housing counseling agency certified to provide predatory lending advice. These include ACORN Housing, the Unity Council. Housing Rights, Project Sentinel, NID-HCA, and Community Housing Corporation of North Richmond. See the list of Housing Counseling Services for contact information for these agencies.
Additional resources on foreclosure prevention: