Predatory lending is the practice of mortgage loans being priced above the prime competitive market. This is also known as "Sub Prime Lending," which extends credit at higher rates than prime to people who are higher credit risks or have impaired credit.

Predatory Lending

Predatory lending is the practice of mortgage loans priced above the prime competitive market. This is also known as Sub Prime Lending, which extends credit at higher rates than prime to people who are higher credit risks or have impaired credit. This form of lending is increasing rapidly as 90% of Sub Prime loans have been made in the past six years.

Predatory lenders often prey on older homeowners because of the substantial equity most have in their homes. A recent AARP study shows that 78% of older Americans are homeowners and that 80% of these homeowners (65 and older) own their homes free and clear. Beside the equity older homeowners have in their homes many live in older houses in need of repair and they are less likely to perform the repairs themselves. They are also on a fixed income and may need equity for medical and other expenses as well as for their home improvements.

Tips to protect yourself from Predatory Lending:

• Make sure you can really afford the monthly payments.  As a general rule, responsible lenders look for mortgage payments to total no more than 29% of your total gross income
• Make sure the lender and broker you are dealing with are licensed by the State Banking Department.  You may contact the Banking Department at (800) 522-3330
• Watch out for “hidden” terms, such as prepayments and balloon payments
• Be wary of loans offered through door-to-door sales or telemarketing solicitations
• Be wary of offers made by construction companies to procure access to high cost loans in conjunction with construction services
• Be wary of lenders or brokers who guarantee loan approval regardless of your credit history or rating
• Shop around! Interest rates and fees vary widely
• Be suspicious of anyone who pressures you to act before you are ready
• Read the entire loan application before signing.  Make sure there are no blank spaces
• Make sure that you have received, read and understood all required disclosure documents before you close. Make sure there are no changes from what you were previously told
• Consult an attorney before signing anything
• Ask about fees and “points” before applying for a loan
• Make sure you understand what conditions will affect a rate change with a variable interest loan

Common predatory lending practices:

Equity Stripping: The lender makes a loan upon the equity in the consumer’s home; if the consumer cannot make the payments they lose their home.

Loan Flipping: Refinancing a loan where the consumer cannot make payment with a new long high term high cost loan. Each “flip” has an additional cost of points and assorted fees to the homeowner.

Packing: The consumer receives a loan that contains charges for services the consumer did not request or need i.e. the forced purchase of credit insurance.

Hiding the Balloon: The consumer believes they have applied for a low rate loan only to learn that it is a short-term balloon, which will have to be refinanced within a few years.

Discrimination: The lender charges a minority consumer more than a similarly situated consumer who is not a member of the minority.

Albany County Department of Consumer Affairs
112 State Street,
Suite 1207-08
Albany, New York 12207

Phone: (518) 447-7581
Fax: (518) 487-5048