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What is a Predatory Mortgage Loan?

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By definition, a “predatory” mortgage loan is any loan that tries to take advantage of the borrower by charging too high an interest rate or fees that are too high. In some States the laws regulating mortgage lending are vague and many lenders refuse to operate in these States. Other lenders use the grey area to exploit borrowers with unfair lending practices. These are the “predatory” lenders you hear so much about. Laws governing predatory mortgage lending vary from State to State; some States categorize any mortgage rate higher than a certain percentage rate, say 12 percent as predatory.

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Other States look at the 1 Year Treasury Index and add anywhere from 5 to 8 percent when limiting how much mortgage companies operating in their States can charge homeowners. Some States regulate closing costs and lender fees but there is no standard definition for predatory lending across the country. A good resource for information regarding predatory mortgage lending is the website of your Sate Attorney General.

There are mortgage companies that make loans to people they know cannot repay solely with the purpose of foreclosing and seizing the property. Once the mortgage company forecloses they sell the home for a profit. This only works for homes that have a bit of equity and a homeowner that doesn’t know what they’re getting involved with. If you’re considering a mortgage with a very high interest rate and are not sure you can make the payments, don’t take out the loan.

Remember, “Sub-prime” does not necessarily mean “predatory.” People with poor credit have a hard time qualifying for mortgage loans without being taken advantage of by a crooked lender. There are legitimate lenders that offer high interest rate loans to homeowners with poor credit; however, you might find your lender is out only to steal your home. You can learn more about your mortgage options, including ways to avoid predatory lending with your mortgage by registering for a free mortgage tutorial.

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