Mortgage Q & A: What Is Predatory Lending?

Q: We're looking to buy our first home and are worried about qualifying for a mortgage. My wife is concerned that "predatory" lenders will take advantage of us. Is there a way to tell if a lender is "predatory?"

A: One sure thing about predatory lenders is that they don't advertise themselves that way.

Predatory Lenders Hunt You Down

Predatory lenders seek out borrowers who may be less knowledgeable about mortgages and more desperate for loan approval (and less likely to question any loan that they're offered). That usually involves soliciting less educated folks, targeting minority neighborhoods that might be underserved, and hunting for elderly homeowners they can talk into refinancing.

So if a lender approaches you and you haven't been inquiring about a loan or initiating contact, be cautious. Some of these guys even go door-to-door!

Predatory Loans = Expensive Loans

Other signs of predatory lending are high rates and costs, especially if you qualify for better financing. The best way to be sure that you're getting a legitimate deal is to compare quotes from competing licensed mortgage lenders doing business in your state. You can easily request mortgage quotes from legitimate companies on

Predatory Lenders Hide the Truth

Finally, predatory lenders don't comply with mortgage disclosure laws. Legitimate lenders provide the legally required standard forms showing the loan program and its terms -- a Good Faith Estimate, a Truth-in-Lending form, and others. Understand that higher cost mortgages are not illegal and may be good options for folks who need and are capable of repaying them. However, lenders supplying these loans must provide a HOEPA (Home Ownership and Equity Protection Act) disclosure indicating that the loan has higher costs than normal. Don't sign any loan documents until you fully understand and agree to the loan's terms.

If you have questions about the process of buying a home and applying for a mortgage, consult a HUD-approved housing counseling agency.

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