Common predatory lending practices include charging excessive points and fees, steering borrowers to higher-rate loans when they qualify for better terms, balloon payments designed to force refinancing, requiring unnecessary products as a condition of the loan, and equity stripping through repeated refinancing. Federal laws including TILA, RESPA, HOEPA (Home Ownership and Equity Protection Act), and state consumer protection laws provide safeguards against predatory lending.
A loan officer steers a minority borrower into a subprime loan at 9% interest even though the borrower's credit score qualifies for a conventional loan at 6.5%. The loan also includes $8,000 in unnecessary fees. This is predatory lending.
The exam tests your ability to identify predatory practices. Key indicators: targeting vulnerable borrowers, excessive fees, steering to higher rates, balloon payments designed to trap borrowers, and equity stripping. Know that HOEPA provides specific protections for high-cost mortgages.
Related Terms
Related Concepts
In the context of foreclosure, a deed transfers ownership of the foreclosed property to the new owner, typically the buyer at a foreclosure sale.
A trustee sale is a type of foreclosure where a trustee, appointed under a deed of trust, sells the property at auction to satisfy the debt.
Foreclosure is the legal process by which a lender takes possession of a property when a borrower fails to make mortgage payments. It allows the lender to sell the property to recover the outstanding debt.
A conventional loan is a mortgage that is not insured or guaranteed by a government agency such as the FHA, VA, or USDA. It is originated and funded by private lenders and may be conforming or non-conforming.
An FHA loan is a mortgage insured by the Federal Housing Administration that allows lower down payments and credit scores than conventional loans. It is designed to help first-time homebuyers and borrowers with limited resources.
Frequently Asked Questions
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