Typical Predatory Loan Scams
(including some home equity refinances)
Refinancing can be a trap for unwary consumers. Unscrupulous lenders are notorious for packing hidden fees in the new transaction. In many cases, consumers are lured by consolidation companies that advertise in the wonders of combining all of the consumer's debts into one single monthly payments. They never advertise the fact that the transaction may double the total cost of the existing debt, or that it may put the borrower's home on the line if it becomes collateral for the new loan.
Multiple Refinancing or "Loan Flipping"
Repeated refinancing of the loan, encouraged by the same or another lender, results in an ever-increasing principal and a severe reduction in the equity in that home. Every refinancing triggers a new round of "points" and fees over the life of the loan as well as the points and fees carried over from the old loan.
Long-term homeowners, in particular, are targeted by abusive mortgage lenders. These homeowners have owned their homes for long periods of time, paid down their original mortgage, and can show a significant amount of equity for their efforts.
A segment of the subprime mortgage market engages in "asset-based lending," where they are only looking to the value of the home, rather than the borrowers ability to pay from liquid assets. This of course leads to foreclosure.
Home Improvement Cases and Door-to-Door Solicitation
The targets in this case are also those long-term homeowners and elderly. Their homes often need repair just at the time their incomes shrink at retirement. Enter the role of the door-to-door salesman. They have a history of high-pressure tactics, deception, and other systemic consumer abuse. In the predatory lending context, door-to-door sales occur most often by home improvement contractors. Problems that occur include shoddy and overpriced work, failure to perform the job, misrepresentations about the quality of the work or the materials to be furnished, backdating documents to undermine the three day right to cancel, collusion with a lender, unlicensed contractors, and providing grossly over-priced credit to finance the work.
Reviewed August 2009