What is Predatory Lending and How to Avoid It

1. What is Predatory Lending and How to Avoid It

2. Avoiding Deceptive and Predatory Lending- Overview • Predatory Lending A predatory loan is a sub-set of a sub-prime loan. It is an unsuitable loan designed to exploit vulnerable and unsophisticated borrowers. A predatory loan may have one or more of the following features: 1.) charges more in interest and fees than is required to cover the added risk of lending to borrowers with credit imperfections, 2.) contains abusive terms and conditions that trap borrowers and lead to increased indebtedness, 3.) does not take into account the borrower’s ability to repay the loan successfully, and 4.) often violates fair lending laws by targeting women, minorities and communities of color.

3. Avoiding Deceptive and Predatory LendingIdentifying Aggressive Marketing Techniques • Targeting mailings to low-income or minority neighborhoods • Home improvement Scams • Racial steering to high-rate lenders • Kickbacks to mortgage brokers (Yield Spread Premiums)

4. Avoiding Deceptive and Predatory LendingCommon Tactics/Sales • Structuring loans with payments the borrower can not afford • Inflated appraised value of home • Falsifying loan applications • Adding insincere co-signers • Forging signatures on loan documents • Requesting signatures on blank signature pages that can be linked to other documents • Paying off low income or subsidized mortgages • Changing loan terms at closing • Shifting unsecured short term debt into mortgages • Property flipping • Selling substandard or uninhabitable properties at inflated prices • Promises of an approval of a lower rate in the future

5. Avoiding Deceptive and Predatory LendingCommon Tactics/ Loan Terms • Unjustified high interest rates • Unjustified high points or padded costs • High interest balloon loans • Unnecessary broker fees • Required credit insurance/ financing single premium insurance • Loans in excess of 100% LTV • Falsely identifying loans as lines of credit or open-end mortgages • Request to sign blank or unfinished documents • No collection of insurance and property tax escrow • Mandatory arbitration clauses • Unjustified and excessive prepayment penalties • Adjustable rate loans with high interest rates and high minimum floor rates

6. Avoiding Deceptive and Predatory LendingInterest Rates and Terms • Adjustable Rate Mortgages indexes, margins, change dates, ceilings and floors • Prepayment penalty calculations • Simple interest rate loans (daily interest calculations) • Interest rate increase after default

7. Avoiding Deceptive and Predatory LendingCommon Tactic At or After Closing • Loan flipping (repeated refinancing, often after high pressure sales) • No receipt of closing documents • Padded recording and settlement fees • Daily interest when loan payments are late • Unnecessary forced placed homeowners insurance policies • Abusive collection/ servicing practices ( misapplied payments-unapplied payments, etc.) • Unaffordable forbearance or modification agreements • Foreclosure abuses • Failure to report good payment history • Failure to provide accurate loan balance and timely payoff amount • Failure to respond to request for account information

8. How Can We Stop Predatory Lending in our Communities? • Consumer Education • NCRC’s National Consumer Rescue Fund (CRF) • Strong National Anti-Predatory Lending Bills • Continuous Engagement of Traditional Financial Institutions

9. Avoiding Deceptive and Predatory LendingConsumer Education • Homeownership counseling • Default counseling • Foreclosure prevention • Obtaining credit reports from all credit bureaus at least once a year • Knowing their credit profile • Asking questions and shopping around for the best deal • No verbal agreements, get it in writing

10. Avoiding Deceptive and Predatory LendingUnderstanding Mortgages and Refinancing • Types of mortgages-FHA,VA or conventional • Prime or sub-prime • Mortgage Terms- fixed, adjustable, balloon, etc. • Compare the total cost to refinance, as well as interest rates • Documents required at application, prior to closing and at closing • Escrow accounts for property taxes and insurance

11. National Anti-Predatory Lending Consumer Rescue Fund Program The National Anti-Predatory Lending Consumer Rescue Fund Program (CRF) is designed to get borrowers out of abusive loans and help borrowers at risk of foreclosure get a fresh start. All CRF loans are conventional home mortgage loans with market-like interest rates, no fees, no points, no prepayment penalties, and no insurance or ancillary product sales or offerings. The CRF has created a national predatory lending referral network in cooperation with other consumer rights, legal service, fair lending and the pro-bono Bar. The purpose of the collaboration is to maximize our collective ability to bring fair lending cases and complaints for matters that were previously perceived as consumer issues. NCRC is also reporting out "trends" data and refinancing problematic consumer loans in order to give fair lending victims a "fresh start.”

12. National Anti-Predatory Lending Consumer Rescue Fund Program NCRC member agencies and others can gain access to NCRC’s Consumer Rescue Fund Program in the states of Alabama, Arizona, California, Florida, Georgia, Illinois, Indiana, Maryland, Massachusetts, Nevada, New York, North Carolina, Ohio, Pennsylvania, Rhode Island,Texas and Wisconsin. Nationally, anyone from any state can access the Consumer Rescue Program for advocacy and mediation services against predatory lending.

13. CRF Program Initiatives • Refinance clients to affordable loans with the “ability to pay and intent to pay”, being the key points • Seek settlements to lower loan amounts to affordable levels • Eliminate onerous fees, terms and conditions • Provide a no cost remedial mortgage loan to consumers • Mediate affordable repayment arrangements outside of the CRF

14. CRF Program Evaluation • The CRF offers a low rate, no fee loan for consumers who qualify for this special program and demonstrate both the ability and intent to pay. The evaluation process consist of: • High risk mortgages- can be defined as unaffordable or inequitable terms • Consumers who have made good faith efforts to pay their loans but, are unable to do so due to a change in financial circumstances • Senior citizens (age 65+) who have recently refinanced their home and exhibit loan at risk parameters (little or no disposable income, high LTV, etc.) • Origination concerns, such as over appraisal, high fees, high interest rates, misrepresentation, etc. • Servicing related concerns • Unintentional financial hardships • Predatory or problematic nature of transaction placing homeowner at “risk of foreclosure.”

15. Support a Strong National Anti-Predatory Lending Bill • Currently there are only 6 states with comprehensive anti-predatory lending bills. But there is a strong need for a national bill to protect the many states that will never get a state bill passed and to protect against the national banks that are exempt from these state laws. NCRC is pushing for strong, national anti-predatory lending legislation and currently endorses the Miller-Watt-Frank bill, H.R. 1142.H.R. 1142:* Modeled after North Carolina's predatory lending statute, considered by many to be the model state statute for preventing abusive lending* Provides the most comprehensive and effective protections for borrowers by prohibiting a wider variety of abusive practices than the Ney-Kanjorski and Clay bills

16. Engaging Traditional Financial Institutions • As advocates against predatory lending we need to remember our key partners in curving predatory lending practices are traditional financial institutions such as banks. Most of the consumers that are targeted by predatory lenders are those that are “unbanked” or rely on finance companies or other unregulated banks to answer their mortgage needs. Local community organizations can partner with traditional financial institutions to help bridge the gap that unscrupulous lenders have now filled with predatory products. By partnering with the traditional financial institutions, local banks and community -based organizations can offered consumers more competitive loan products addressed specifically to their community. Only a community knows how to best address their communities needs.

17. Summary The National Community Reinvestment Coalition in its partnership with HSBC-North America brings this opportunity to consumers that have been victims of unfair and abusive lending across the nation. The establishment of the National Anti-Predatory Lending Consumer Rescue Fund Programs shows that the collaboration of these entities can work together in furtherance of a strategy to challenge predatory lending practices and provide a safe and affordable mortgage loan.

18. Avoiding Deceptive and Predatory LendingFair Lending/ Housing Laws • The Fair Housing Act • The Fair Credit Reporting Act (FCRA) • Home Mortgage Disclosure Act (HMDA) • Equal Credit Opportunity Act (ECOA) • Community Reinvestment Act (CRA) • Truth-in-Lending Act (TILA) • Home Ownership and Equity Protection Act (HOEPA)

19. Information on NCRC’s National Anti-Predatory Lending Consumer Rescue Fund Program can be found at www.fairlending.com. Working together, economic justice can be a reality in your community. Join NCRC now! (www.ncrc.org-www.fairlending.org)