Real Estate Investing Article

Finance Smart: What Is a "Predatory" Lender?

By Jeanette Joy Fisher

The 3,000-member California Association of Mortgage Brokers (CAMB) created the first real definition to describe the abusive lending practices of predatory lenders. According to the CAMB, predatory lending was described as "placing consumers in loan products with significantly worse terms and/or higher costs than loans offered to similarly qualified consumers in the region for the primary purpose of enriching the originator and with little or no regard for the costs to the consumer."

Most mortgage brokers provide good service to their clients, yet there are a few who use unethical practices. Those brokers, called "predatory lenders" by the CAMB, not only over-charge consumers, but they also get paid in other hidden ways.

If you’re looking to finance or refinance a home mortgage, watch for hidden loan costs, such as the Yield-Spread Premium. This term refers to a rebate that's given to brokers when they place a borrower at an interest rate higher than the rate for which they qualify. Refuse to pay yield-spread premiums and unwarranted fees, and avoid brokers who include these charges in their loans. 

Besides charging high points and fees, predatory lending practices may also include such things as "packing" credit insurance on to a loan, making mortgage loans to homeowners who don't have the income to repay them, and repeatedly refinancing loans. 

When it comes to obtaining a real estate loan, it's your responsibility to become a knowledgeable consumer, which means you'll need to keep asking questions of your loan officer. If you aren't able to get clear, easily understandable answers to your questions, it's possible that you may be dealing with a predatory lender. 

Copyright © 2005 Jeanette J. Fisher - All Rights Reserved.

 Jeanette Fisher, author of "Credit Help! Get the Credit You Need to Buy Real Estate," helps people buy their dream home or finance multiple investment properties. Jeanette teaches real estate investing and Design Psychology. For free "Credit Tips for Mortgage Financing" eBook, visit the Real Estate Help Credit Center at http://recredithelp.com .  

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