Predatory mortgage lending
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There is concern in the US that consumers are often victims of predatory mortgage lending according to CNN. The main concern is that mortgage brokers and lenders, while operating legally, are dishonestly finding loopholes in the law to obtain additional profit.
Some examples of predatory mortgage lending are:
- Encouraging applicants to include false information.
- Asking borrowers to leave signature lines blank.
- Failing to include Good Faith Estimates, Special Information Booklet, Truth in Lending and Hud-1 Settlement statement.
- Convincing borrowers to refinance a loan several times and each time increasing monthly payments or amounts owed.
- Loaning amounts higher than the value of the home.
- Not explaining unexpected costs at the settlement.
- Balloon loans: after a series of low payments the entire loan balance is due in a large lump sum.
Another unethical practice involves inserting hidden clauses in contracts in which a borrower will unknowingly promise to pay the broker or lender to find him or her a mortgage whether or not the mortgage is closed. Though regarded as unethical by the National Association of Mortgage Brokers, this practice is within the bounds of the law. Often a dishonest lender will convince the consumer that he or she is signing an application and nothing else. Often the consumer will not hear again from the lender until after the time expires and then the consumer is forced to pay all costs. Potential borrowers may even be sued without having legal defense.
See also Mortgage fraud.
