Mortgage borrowing grew more hazardous during the 1990’s, as high-rate lenders and fly-by-night mortgage brokers crowded the home lending and refinancing business. Aggressive and dishonest practices have become common in many communities.
Practices include:
** Bait and switch, with promises of lower costs and interest rates than the loan provided at closing;
** Loans packed with fees, so the quoted interest rate is far from the actual cost of the loan;
** Big prepayment penalties, so borrowers are stuck with high-rate loans for years;
** Mortgage brokers promising to find the best loans, but actually looking for the best deal for themselves, and getting fees from the lenders for selling borrowers on higher-rate loans;
** Borrowers being convinced to cover all their debts with a refinanced home loan, even though they can’t afford the payments and are putting their house on the line. Brokers may convince appraisers to inflate quoted home values so the loans will go through.
Sometimes legal representation can help homeowners get out of bad loans, or change the terms. Federal mortgage loan disclosure rules are not always followed, and state consumer statutes provide a basis to challenge dishonest practices. Plan attorneys have sued lenders and brokers when legal issues were available, saving clients money and keeping some homes from foreclosure. However, the best advice is to avoid problems by not entering into mortgage loans that you don’t fully understand.
** Shop around. Don’t jump for the first loan offered, particularly if the lender or broker called you.
** Ask questions, of the lender and your legal services office. Your Plan office can answer questions about the nature and meaning of the documents you are being asked to sign.
** Don’t jump to sign. You can change your mind, even if you told the lender you would sign.
** Don’t assume you have a 3-day right to cancel, but, if you do, use it if you need to. Many home mortgage refinance agreements can be canceled, but home purchase loans cannot. If you received a right to cancel notice, don’t wait until the three days are up to get help making that decision.
** Don’t be pressured.
Some places to go for more information:
Federal Trade Commission: www.ftc.gov/bcp/conline/pubs/alerts/eqtyalrt.htm
National Consumer Law Center: www.consumerlaw.org/consumer/foreclose.html
Coalition for Responsible Lending:www.responsiblelending.org