How to Avoid Predatory Lending Practices when Refinancing Your Home Mortgage Loan: Exposing the Dirty Deeds of Mortgage Lenders
Predatory lending describes unfair and/or fraudulent practices committed by lenders during home loan origination and home loan mortgage refinancing. There are many predatory lending practices that can create unnecessary hardship for mortgage holders undergoing a home loan refinance including:
- Selling for More than the Property is Worth: In an attempt to receive more of a profit from your refinancing, unethical mortgage lenders will sometimes sell properties for far less than they are worth by using false appraisals. This works out great for the mortgage broker who can then use the difference to line his own pockets, but it ends up cheating the home buyer out of equity.
- Equity Stripping: Still some other mortgage lenders will persuade mortgage holders to refinance their home loan again and again when there is no more equity left in the home. They do this so they can profit by “stripping” the equity from your home, taking possession of your property and forcing you to live in your own home as a tenant. Mortgage brokers practicing this form of predatory lending often target homeowners who are on the brink of foreclosure.
- Discriminatory Lending: Sometimes, homeowners are refused interest rates they would ordinarily qualify for because of their race, national origin, sex, sexual orientation or other protected status. You should know that there are federal laws that protect you from discriminatory lending practices when trying to refinance your home mortgage loan.
- Lending More than the Borrower Can Pay: Another way that lenders attempt to turn a profit on your dime is by extending refinance home loans for properties that are worth more than you can afford to repay. While at first such an act may seem like a blessing because you realize you qualify for your dream home (and the lender will persuade you that you can afford the home), in the end it often becomes a curse because you fall behind on your payments and ultimately foreclose on your home.
- Charging Unnecessary Fees: While not illegal, mortgage lenders take advantage of homeowners by tacking unnecessary junk fees onto the loan principal amount. Mortgage brokers are rewarded for overcharging you by receiving a bonus point (1% of your loan) for every .25% that you unknowingly agree to overpay. In many instances, this amounts to thousands of dollars in the first years alone.
While there are laws that protect you from predatory lending during a home loan mortgage refinance, those laws only work to enforce predatory lending practices that have already happened, often after significant damage has been done. Also, these laws cannot help you if you don’t recognize that you are being—or have been— victimized.
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