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Predatory Mortgage

There have been a lot of homes going into foreclosure lately due to the interest rates going up on adjustable rate mortgages causing people's monthly payments to skyrocket. The huge number of foreclosures has caused a lot of talk about predatory mortgage lending.

It seems that some mortgage lenders were using predatory mortgage lending practices and selling adjustable rate mortgages to people who would not be able to afford the payments if interest rates went up. Many of these people did not understand the terms and conditions of their loans, which is one of the defining characteristics of predatory mortgage lending.

Another form of predatory mortgage lending is when mortgage lenders convince homeowners to frequently refinance their loans even when there is little benefit to the homeowner. The predatory mortgage practice generates extra loan fees and prepayment penalties for the mortgage lenders.

Sometimes mortgage lending companies using predatory mortgage practices fail to make sure that the borrowers understand the terms of the mortgage. Predatory mortgage lenders might sell a mortgage with a balloon payment after a certain number of years without making it clear to the homeowner that this is the case. That means the homeowner will either end up with a costly refinancing or losing their home to foreclosure.

Predatory mortgage lenders might also increase the amount of money they make off of unsuspecting borrowers by adding lots of excessive and unnecessary fees, or purchase prices of insurance, into the mortgage amount.

Some predatory mortgage lenders convince borrowers to purchase subprime mortgages when they would have qualified for regular prime mortgage and saved a lot of money in fees and interest had they gotten this type of mortgage.

One other common practice with predatory mortgage lending is building in abusive prepayment penalties to the subprime, or prime, mortgage. Most mortgages do not have prepayment penalties, or have very small prepayment penalties. Some predatory mortgage lenders sell mortgages with prepayment penalties as much as five percent of the original loan. This means that when homeowners refinance or prepay their loan, they get hit with huge fees. If these prepayment penalties are coupled with balloon payments or subprime mortgages that need to be refinanced to prevent homeowners from losing their homes when the balloon payment comes due or the interest rates shoot up, homeowners can lose any equity they may have built up in their house and may even owe more money.

Predatory mortgage lenders tend to focus on those most vulnerable, such as the elderly, the uneducated, and minorities, as these populations tend to be easiest to trick into purchasing a mortgage that is not in their best interest and could end up, in the worst case scenario, losing them their house and ruining their credit, or at best, cost them a lot more money than necessary.

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