Idaho Department of Finance Frequesntly Asked Questions (FAQ) about Consumer Finance.

No se fíe de cualquiera que le ofrezca un "crédito que es una ganga" o un préstamo de "consolidación", aunque lo avisen por correo, por teléfono o llamando a la puerta de casa. No se fíe de los vendedores que prometen un crédito fácil. Sospeche de quien se adelante a contactar
con usted....

If you’re looking for a mortgage to buy a home or refinance an existing loan, you may see or hear ads with offers of low rates or payments. Whether you see them on the Internet, on television or in the paper, or whether they come by fax or mail, some of these ads look like they’re from your mortgage company or a government agency. Regardless of where you see the ads, remember that while the offers are tempting, some are terribly flawed: they don’t disclose the true terms of the deal as the law requires.

The Federal Trade Commission, the nation’s consumer protection agency, says that when you’re shopping for a home loan, it’s important to understand all the terms and conditions of a proposed loan. Start with what is in the ad itself. Read what’s between the lines as well as what’s in front of your eyes.

For the English guide, click here: Deceptive Mortgage Ads - English

For the Spanish/Espanol guide, click here: Deceptive Mortgage Ads - Spanish/Espanol. 

Idaho Legal Aid Services Fair Lending: Predatory Lending Abuses Brochure.

The work that provided the basis for this page was supported by funding under a grant with the U.S. Department of Housing and Urban Development.  ILAS is solely responsible for the accuracy of the statements and interpretations contained in this presentation.  Such interpretations do not necessarily reflect the views of the federal government.

Predatory Lending: What is it?

Predatory lending is the practice of preying on, or taking advantage of, an individual or group of people that may have a difficult time buying or refinancing a home such as people who may be poor, uneducated, elderly or in the protected classes (race, religion, national origin, color, disability, familial status, gender).

 What is the issue?

• Certain groups of people are denied their dream of owning a home.
• These same groups are forced to accept lending that is subprime.
• Homeowners are at risk of losing their homes or financial security.

Predatory Lending: Who is at risk?

• Low-income families
• Minorities
• Seniors
• Persons with disabilities

What is a prime loan?

“In conventional lending [prime loans], you're dealing with borrowers with high credit scores, solid income and single-family residences --  basic [well qualified] borrowers…”

What is a Sub-prime loan?

“…in subprime, you're dealing with people who can't prove any income, have low [credit] scores, have had bankruptcies, have way too much credit or need higher loan to values on their property.”

        --Charlie Cartwright, LenderBase Corp.

Consider that subprime lenders grade customers the same way that elementary school teachers grade children. Depending on an applicant's credit score, debt-to-income ratio, ability to verify income and other variables, a lender or broker assesses a letter grade that typically ranges from "A+" down to "D." The loan officer then charges a rate appropriate to that category. Because the distinctions between categories are often slight, borrowers can move up the scale without much effort.

For example, lenders tend to grade people based on how many times they were 30 or 60 days late with their mortgage payments in the past year. Having two "30-day lates" might push them into the "A-" category while having just one would keep them in the "A" zone. As a result, a customer who was late twice, but one of the late payments was 11 months ago, can improve a notch by just waiting a few extra days to borrow. By doing so, that customer could save a half a percentage point, or 50 basis points, on the interest rate, according to pricing sheets wholesale lenders send to mortgage brokers.

So…Sub-prime loans…

provide credit to persons with past credit problems, insufficient credit history, previous bankruptcy, spotty employment, and others that do not meet credit standards in the prime (conventional) loan market.

Subprime Loans and Minorities:

• In five years increased by 10 percent.
• Three times more likely in a low-income neighborhood than in high-income.
• Five times more likely in black neighborhoods than in white.
• Two times more likely in high-income black neighborhoods than in low-income white .

From 1993 to 1998, the # of subprime refinancing loans increased ten-fold. Subprime loans are three times more likely in low income neighborhoods than in high-income neighborhoods. Subprime loans are five times more likely in black neighborhoods than in white neighborhoods. Racial disparity is so great that homeowners in high-income black areas are twice as likely as homeowners in low-income white areas to have subprime loans. –HUD No. 00-75

Subprime loans and Seniors:

Seniors become targets because:

• “cash-poor” even though “asset-rich”
• Limited financial resources (income)
• Limited knowledge about financing alternatives
• Large or unexpected bills for medical expenses or repairs on their older homes

Predatory Lending: Who does it?  (Not an exclusive list.)

• Appraisers
• Mortgage brokers/bankers
• Home improvement contractors
• Lenders/Bankers
• Real estate agents
• Savings and loans
• Credit unions

Predatory lenders:  What do they do?  (Not an exclusive list.)

• False appraisals.
• Encourage false information.
• Lend more than can be repaid.
• Charge more interest based on race or national origin.
• Charge for unneeded products and services.
• Pressure borrowers to accept higher-risk loans.
• Target vulnerable borrowers.
• Refinance again and again (called “flipping”).
• Pressure to refinance and charge high interest rates.
• Encourage borrowers to sign blank forms.

1. Sell properties for more than they are worth using false appraisals.
2. Encourage borrowers to lie about their income, expenses, or cash available for down payments in order to get a loan.
3. Knowingly lend more money than a borrower can afford to repay.
4. Charge high interest rates to borrowers based on their race or national origin and not on their credit history.
5. Charge fees for unnecessary or nonexistent products and services.
6. Pressure borrowers to accept higher-risk loans such as balloon loans, interest only payments, and steep pre-payment penalties.
7. Target vulnerable borrowers to cash-out refinances offers when they know borrowers are in need of cash due to medical, unemployment or debt problems.
8. Strip homeowners’ equity from their homes by convincing them to refinance again and again when there is no benefit to the borrower.
9. Use high-pressure sales tactics to sell home improvements and then finance them at high interest rates.

More Abusive Practices…  (Not an exclusive list.)

• Single premium credit insurance.
• High fees.
• Prepayment penalties.
• Yield-spread premiums.
• Steering.
• Mandatory arbitration.
• Flipping.
• Balloon payments.
• Interest only loans.
• Higher interest rates.
• Debt shifting.
• Recommend subprime loans.

(For more information see www.responsiblelending.org)

1. Credit insurance premiums should not be financed into the loan up-front in a lump-sum payment.   

2. Borrower should not be charged excessive points and fees for conventional, FHA or VA loans.  Please check with your Department of Finance or HUD if you have questions or a suspicion that you are being charged excessive points.

3. Loans should not include prepayment penalties because prepayment penalties trap borrowers in high-rate loans, which too often leads to foreclosure, and prepayment penalties are hidden, deferred fees that strip significant equity.

4. Fees that lenders rebate to brokers in exchange for placing a borrower in a higher interest rate than the borrower qualifies for. Brokers originate over half of all mortgage loans and a small number of brokers are responsible for a large percentage of predatory loans.

5. Lenders should make sure that borrowers get the lowest-cost loan they qualify for.

6. Lenders should not allow clauses in the loan contracts that force the borrower into arbitration in the event of a dispute for wrongful practices.

7. Flipping of borrowers occurs through repeated fee-loaded refinancing. Lenders refinance subprime loans over and over, taking out home equity wealth in the form of high fees each time without providing the borrower with a net tangible benefit.

8. Balloon payments are a condition of a loan when a very large payment comes due a few years into the loan.

9. Interest only payments are loans where the borrower’s payments only cover the interest portion of the loan and not principle.

10. Debt shifting is when unsecured debt is shifted into a secured mortgage.

11. When lenders recommend subprime loans for people who qualify for conventional loans.

What tactics do predators use?      

• “This is your only chance”.
• “The Federal Housing Administration insurance protects you against property defects or loan fraud”.
• “Refinancing can solve your credit or money problems”.
• “You can only get a good deal on a home improvement loan if you finance with this lender”.

1. A lender or investor tells you that they are your only chance of getting a loan or owning a home. You should be able to take your time to shop around and compare prices and houses.

2. You are told that the Federal Housing Administration insurance protects you against property defects or loan fraud – it does not.

3. You are told that refinancing can solve your credit or money problems.

4. You are told that you can only get a good deal on a home improvement if you finance it with a particular lender.

Possible signs of lending abuses:

• House costs more than similar ones in the neighborhood.
• Sales contract or loan document has blanks or false information.
• Cost or closing terms are different.

1. The house you are buying costs a lot more than other homes in the neighborhood, but isn’t any bigger or better.

2. You are asked to sign a sales contract or loan documents that are blank or that contain information which is not true.

3. The cost or loan terms at closing are not what you agreed to.

Protect Yourself: be a smart consumer

• Educate yourself about homeownership.
• Interview real estate professionals.
• Find out about the prices of comparable homes.
• Have the property inspected.
• Shop for a lender.
• Read everything carefully and ask questions.
• Watch that the cost doesn’t increase.
• Don’t be persuaded to make false statements.
• Don’t be persuaded to borrow more than you can repay.
• Don’t sign a blank document or a document containing blanks.
• Don’t make false statements about your intention to occupy.

12 Tips On Being A Smart Consumer

1. Before you buy a home, attend a homeownership education course offered by the U.S. Department of Housing and Urban Development (HUD)-approved, non-profit counseling agencies.

2. Interview several real estate professionals (agents), and ask for and check references before you select one to help you buy or sell a home.

3. Get information about the prices of other homes in the neighborhood. Don't be fooled into paying too much.

4. Hire a properly qualified and licensed home inspector to carefully inspect the property before you are obligated to buy. Determine whether you or the seller is going to be responsible for paying for the repairs. If you have to pay for the repairs, determine whether or not you can afford to make them.

5. Shop for a lender and compare costs. Be suspicious if anyone tries to steer you to just one lender.

6. Read everything carefully and ask questions. Do not sign anything that you don't understand. Before signing, have your contract and loan agreement reviewed by an attorney skilled in real estate law, consult with a trusted real estate professional or ask for help from a housing counselor with a HUD-approved agency. If you cannot afford an attorney, take your documents to the HUD-approved housing counseling agency near you to find out if they will review the documents or can refer you to an attorney who will help you for free or at low cost.

7. Be suspicious when the cost of a home improvement goes up if you don't accept the contractor's financing.

8. Do NOT let anyone persuade you to make a false statement on your loan application, such as overstating your income, the source of your down payment, failing to disclose the nature and amount of your debts, or even how long you have been employed. When you apply for a mortgage loan, every piece of information that you submit must be accurate and complete. Lying on a mortgage application is fraud and may result in criminal penalties.

9. Do NOT let anyone convince you to borrow more money than you know you can afford to repay. If you get behind on your payments, you risk losing your house and all of the money you put into your property.

10. Never sign a blank document or a document containing blanks. If information is inserted into the loan document by someone else after you have signed, you may still be bound to the terms of the contract. Insert "N/A" (i.e., not applicable) or cross through any blanks.

11. Be honest about your intention to occupy the house. Stating that you plan to live there when, in fact, you are not (because you intend to rent the house to someone else or fix it up and resell it) violates federal law and is a crime.

12. Make sure that your mortgage payment is no more than 30% of your net income.  Make sure you include all of your expenses in determining the 30%.

What can you do? Contact the following:

U.S. Department of Housing and Urban Development (HUD)

1-800-669-9777

-or-

1-800-927-9275 (TDD)

Idaho Legal Aid Services

(208) 345-0106 in Boise local calling area, statewide toll-free 1-866-345-0106 

En español llamada gratis estatal, 1-866-954-2591 o 454-2591 en la área local de llamadas en Caldwell

Intermountain Fair Housing Council

(208) 383-0695 in Boise

-or-

1-800-717-0695 (toll-free)

On the Web:

• www.hud.gov
• www.responsiblelending.org
• www.idaholegalaid.org

For legal advice regarding senior citizens:

Idaho Legal Aid’s Senior Legal Hotline

Mon-Fri 9 am-12 pm and 1 pm to 4 pm

Statewide toll-free, 1-866-345-0106 or 345-0106 in the Boise local calling area

En español llamada gratis estatal, 1-866-954-2591 o 454-2591 en la área local de llamadas en Caldwell.

This section examines the requirements of the federal Fair Housing Act pertaining that prohibit discrimination in mortgage lending and servicer practices. This section includes information on foreclosures and foreclosure prevention.

• Fair Lending - HUD.gov
• Tips for Avoiding a Predatory Loan
• All Other Things Being Equal: A Paired Testing Study of Mortgage Lending Institutions
• Foreclosure Prevention
• Lending and the Fair Housing Act

The Fair Lending/Fair Housing Legal Advice Line can address your issues or questions about housing discrimination. The Fair Lending/Fair Housing Legal Advice Line serves residents of the State of Idaho regardless of income.

Fair Lending/Fair Housing Legal Advice Line
(866) 345-0106 (toll free) or (208) 345-0106 (Boise calling area)

ILAS Fair Lending Project poster, which identifies some common warning signs of predatory lending, is available for printing and posting at your business.

Idaho Legal Aid Services Fair Lending Project:
How to Escalate Your Case

File a Complaint against the Bank at:

https://appsec.helpwithmybank.gov/olcc_form/

When You File a Bank Complaint On-line:

Have you checked our Get Answers section for information about National Bank regulations and your rights as a bank customer?

Have you tried to resolve your complaint with your financial institution? The OCC recommends that you attempt to resolve your complaint with your financial institution first. Please contact your financial institution to allow them the opportunity to resolve your issue(s).

1. Check to make sure that your financial institution is a National Bank. Search Financial Institutions. If the bank is not a National Bank, you should contact the appropriate regulator to submit your complaint.

Note: Effective July 21, 2011, the Office of Thrift Supervision became part of the Office of the Comptroller of the Currency. The OCC's Consumer Assistance Group assists national bank and federal savings association, or thrift customers; see our OCC/OTS Integration Page for more information.

2.  Please select only ONE of the following methods to file your complaint. Do not mail, e-mail, or fax additional information unless requested.

Complete the Online Customer Complaint Form (Recommended). For security purposes, the form contains user time limitations. If your session exceeds the limitations, any information you have entered may be lost. To avoid this, gather all necessary information prior to entering the form. See the section: Learn what to include in your complaint.

Print an OCC Complaint Form (PDF). [En Español (PDF)] To view PDF files, you will need Acrobat Reader. For your convenience, all forms including the online version, request the same information.

Write and mail or fax a letter to the OCC.

3.  Have questions? Discuss your question or concern with a customer assistance specialist.

Call the OCC Customer Assistance Group at 1-800-613-6743.
TDD Number 713-658-0340.

4.  What can you expect from us.

Check the status of an existing case.

File an appeal.

Note: Effective July 21, 2011, the Office of Thrift Supervision became part of the Office of the Comptroller of the Currency. The OCC's Consumer Assistance Group assists national bank and federal savings association, or thrift customers; see our OCC/OTS Integration Page for more information.

How to File a Complaint when there is Discrimination in Lending:

If there is discriminatory lending under the Fair Housing Act based on race, religion, national origin, color, disability, sex, and or familial status, for Idaho, file a complaint with the Region X Department of Housing and Urban Development Fair Housing and Equal Opportunity Office at: 

FHEO HUB Office
909 1^st Ave., Ste. 205, 0AE
Seattle, WA 98104
(800) 877-0246 or (206) 220-5170
TDD: (206) 220-5185
FAX: (206) 220-5447

or

http://portal.hud.gov/hudportal/HUD?src=/program_offices/fair_housing_equal_opp/online-complaint

or you can print a form and mail it to the address above.

For More Information and or Assistance Contact:

Consumers as well as housing providers and lenders, may contact the Fair Housing/Fair Lending Legal Advice line by calling Idaho Legal Aid Services, Monday through Friday, 9:00 a.m. to 12:00 p.m., M.S.T., (208) 345-0106 in Boise calling area, or statewide toll-free 1-866-345-0106, or (TTY) 1-800-245-7573.  En español llamada gratis estatal, 1-866-954-2591 o 454-2591 en la área local de llamadas en Caldwell or on the web at www.idaholegalaid.org. If you are a senior, you may also call the Idaho Senior Legal Hotline toll-free 1-866-345-0106 or 345-0106 in the Boise calling area, Monday and Tuesday 9:00 a.m. to 12:00 p.m. and 1:00 p.m. to 3:00 p.m., M.S.T. and on Wednesdays from 1:00 p.m. to 3:00 p.m. M.S.T.  Visit our web site at www.idaholegalaid.org for fair lending and fair housing information and materials.  E-mail the Fair Lending Advice Line at fairlending@idaholegalaid.org.

“The work that provided the basis for this publication was supported by funding under a grant with the U.S. Department of Housing and Urban Development.  The substance and findings of the work are dedicated to the public. The author and publisher are solely responsible for the accuracy of the statements and interpretations contained in this publication.  Such Interpretations do not necessarily reflect the views of the Federal Government.”

What is a manufactured home?

A manufactured home is a structure formerly known as a mobile home. It is built to the Manufactured Home Construction and Safety standards set by HUD and displays a red certification label on the outside of each transportable section. The certification is available only to those homes manufactured after June 15, 1976, when the standards were implemented
and cannot be received for any constructed prior to this date.

The structure is built in a manufacturing plant and transported in one or more sections on a permanent chassis. In the State of Idaho, manufactured housing constitutes real property if the running gear is removed and (1) it becomes permanently attached
to a foundation, and (2) the owner records, with the county recorder’s office in the county where the home is located, a  statement of intent to declare it as real property. (Idaho Code § 63-304.)

The structure must be transportable in one or more sections which, when in traveling mode, is at least 8 feet wide and at least 40 feet long, or when put together is at least 320 square feet and which is built on a permanent chassis and intended to be used as a dwelling with or without a foundation. (Idaho Code § 28-9-102 (53).

The Fair Housing Act and Fair Lending Act apply to manufactured housing the same as they apply to apartments and more traditional homes. More information regarding these statutes is available at www.idaholegalaid.org.

Lenders can not discriminate on the types of loans available to help finance the purchase of a manufactured home based on any of the protected classes, including: race, color, religion, sex, national origin, familial status (the presence or number of children in a household) or disability.

Manufactured housing standards are created and enforced by HUD. HUD provides two types of consumer protection. The borrower must sign a HUD Placement Certificate agreeing that the home has been installed and set-up to their satisfaction by the retailer before the lender can give the loan proceeds to the retailer. After moving in, the borrower can call HUD at (800) 927-2891 to get assistance about the problems with construction of the home.

Financing Options

There are several alternatives to financing a manufactured home.

• The most common method is through a retail installment contract through the retailer.
• Government insured loans:
  • Fair Housing Administration (Title I & II)
  • Veterans Administration
  • Rural Housing Services under the U.S. Department of Agriculture
• Private lending institutions may also have loans available if the home does not qualify for other loans.

What can I do ?

The following are resources you may contact for questions and information regarding housing discrimination:

• Consumers, realtors, housing providers, and lenders may contact the Fair Lending/Fair Housing Legal Advice Line by calling Idaho Legal Aid Services, Monday through Friday, 9:00 a.m. to 12:00p.m., M.T., (208) 345 0106 in Boise calling area, or statewide toll-free 1-866-345-0106, or (TTY) 1-800-245-7573.

• En Español llamada gratis estatal, 1-866-945-2591 o 454-2591 en el área local de llamadas en Caldwell.

• Idaho Legal Aid Services Inc. (ILAS)
  1447 S. Tyrell Lane, Boise, ID 83706
  208-345-0106 in Boise
  1-866-345-0106 (toll-free)
  www.idaholegalaid.org

• Visit the Idaho Legal Aid Services website (above) for fair lending and fair housing information and materials.

• Intermountain Fair Housing Council
  (208) 383-0695 in Boise –or-
  1-800-717-0695 (toll-free)

• U.S. Department of Housing and Urban Development (HUD)
  Seattle and Washington DC
  1-800-669-9777
  1-800-927-9275 (TDD) or

• FHEO Hub Office
  909 1st Ave, Ste 205, 0AE
  Seattle, WA 98104
  (800) 877-0246 or (206) 220-5170
  TDD: (206) 220-5185
  FAX: (206) 220-5447

If you wish to file a complaint against a lender you may do so by calling HUD at the number above or by filling out an online
form found at:

http://portal.hud.gov/hudportal/HUD?src=/topics/housing_discrimination

The work that provided the basis for this publication was supported by funding under a grant with the U.S. Department of Housing and Urban Development. The substance and findings of the work are dedicated to the public. The author and publisher are solely responsible for the accuracy of the statements and interpretations contained in this publication. Such interpretations do not necessarily reflect the views of the Federal Government.

Si usted es propietario de una vivienda y necesita dinero para pagar cuentas o para hacer reparaciones en su casa, es posible que crea que un préstamo sobre el valor neto de la vivienda (home equity loan en inglés) sea la solución. (Un préstamo sobre el valor neto de la vivienda se refi ere a un préstamo garantizado por la inversión neta en el hogar tras restarla del valor total de la hipoteca.) Pero no todos los
préstamos y prestamistas son iguales—usted haría bien en comparar. El costo de obtener préstamos de instituciones de préstamo que cobran cargos altos puede resultar excesivo y en algunas ocasiones abusivo. Por ejemplo, algunos prestamistas— comúnmente conocidos como “prestamistas depredadores”—buscan a propietarios de bajos ingresos o que tienen problemas de crédito o son de edad avanzada para engañarlos sobre las condiciones y los términos del préstamo u otorgarles préstamos que en realidad no pueden pagar.

Equity-rich, cash poor elderly homeowners are an attractive target for unscrupulous mortgage lenders. Many elderly homeowners are on fixed or limited incomes, yet need access to credit to pay for home repairs, medical care, property or municipal taxes, and other expenses. The equity they have amassed in their home may be their primary or only financial asset. Predatory lenders seek to capitalize on elders’ need for cash by offering “easy” credit and loans packed with high interest rates, excessive fees and costs, credit insurance, balloon payments and other outrageous terms...

Be suspicious of anyone who offers you a “bargain loan” or “consolidation” loan, whether they send you an offer, call you on the phone, or come to your door. Don’t rely on salespeople who promise
easy credit. Be suspicious of anyone who contacts you first...

If you’re refinancing your mortgage or applying for a home equity installment loan, you should know about the Home Ownership and Equity Protection Act of 1994 (HOEPA). The law addresses certain deceptive and unfair practices in home equity lending. It amends the Truth in Lending Act (TILA) and establishes requirements for certain loans with high rates and/or high fees. The rules for these loans are contained in Section 32 of Regulation Z, which implements the TILA, so the loans also are called “Section 32 Mortgages.” Here’s what loans are covered, the law’s disclosure requirements, prohibited features, and actions you can take against a lender who is violating the law...

At times we find ourselves in a difficult situation involving our bank, a large business, etc. and don’t know what to do. Calling customer service hasn’t led to any real results so you may be asking yourself what to do next?

Below you will find a number of institutions both governmental and private that specialize in helping you to file a complaint. These institutions are similar to leaving a review on Google or Yelp except they work resolve the issue. As such, they are not places for a person to rant and rave about how terrible the service at a restaurant was, but rather to help a person that was a victim of a shady business, or to get help when a financial institution (like a bank) has mistreated someone. They are not law enforcement agencies imposing a punishment onto these businesses, but rather helping to add authority to your complaint. If your issue cannot be solved after submitting a complaint through one or more of these resources, it is recommended to seek legal help from a private attorney.

Review the document below for links to the agencies that may be able to help if you submit a complaint. These agencies include: 

1. Consumer Financial Protection Bureau

2. Help with my Bank

3. Federal Trade Commission Complaint

4. Idaho Attorney General Consumer Protection Complaint

5. Better Business Bureau Complaint

Idaho Legal Aid Services Fair Lending Project:

How To File A Complaint Against Your Lender

The Office of the Comptroller of the Currency or (OCC) is an arm of the United States Department of Treasury.  The OCC’s primary mission is to charter, regulate, and supervise all national banks and federal savings associations.  You can file a complaint with the OCC against the bank online at:  http://www.helpwithmybank.gov

Consider your answers to the following before you begin your online complaint:

• Have you checked HUD’s “Get Answers” section for information about national bank regulations and your rights as a consumer?
• Have you tried to resolve your complaint with your financial institution?
• Is your financial institution a national bank?  Search “Financial Institutions.”  If your bank is not a national bank, you should contact the appropriate regulator to submit your complaint.

Select only one of the following methods to file your complaint.

• Complete the  “Online Customer Complaint Form.”  Do not mail, e-mail or fax additional information unless requested.
• Print an OCC Complaint Form (PDF).  To view PDF files, you will need Acrobat Reader.  All forms request the same information.
• If you have questions about filing your complaint, discuss them with a customer assistance specialist.  The OCC Customer Assist ance Group can be reached at 1-800-613-6743,
  TDD 1-713-658-0340.

How to file a complaint when there is discrimination in lending:

• If  you live in Idaho and believe you have been a victim of discriminatory lending under the Fair Housing Act based on race, religion, national origin, color, disability, sex and/or familial status, file a complaint with the Department of Housing and Urban Development Fair Housing and Equal Opportunity Office, Region X office:

FHEO HUB Office
909 1st Ave., Ste. 205, OAE
Seattle, WA 98104

(800) 877-0246, (206) 220-5170, TDD(206) 220-5185 

 www.hud.gov

 “The work that provided the basis for this publication was supported by funding under a grant with the U.S. Department of Housing and Urban Development.  The substance and findings of the work are dedicated to the public. The author and publisher are solely responsible for the accuracy of the statements and interpretations contained in this publication.  Such interpretations do not necessarily reflect the views of the federal government.”

Over the last several years, our nation has made enormous progress in expanding access to capital for previously under served borrowers. Despite this progress, however, too many families are suffering today because of a growing incidence of abusive practices in a segment of the mortgage lending market. Predatory mortgage lending practices strip borrowers of home equity and threaten families with foreclosure, destabilizing the very communities that are beginning to enjoy the fruits of our nation’s economic success.

Discrimination in mortgage lending is prohibited by the Fair Housing Act.  The Act makes it unlawful to engage in discriminatory practices based on race, color, national origin, religion, sex, familial status or handicap (disability).  Examples of discrimination in lending include:

• Refusing to make a mortgage loan
• Refusing to provide information regarding loans
• Imposing different terms or conditions on a loan, such as different interest rates, points, or fees
• Discriminating in appraising property
• Refusing to purchase a loan or setting different terms or conditions for purchasing a loan

Pre-Application Discrimination

Prior to applying for a loan, many consumers contact lenders to inquire about mortgage lending and financing options available to them.  The information they receive at this stage, may determine whether they decide to enter the home buying market or will determine the parameters of their housing search.  Therefore, it is crucial that potential homebuyers obtain full and fair access to information about mortgage financing.

To determine whether minority homebuyers receive the same treatment and information as whites at the pre-application phase of the loan process, the Urban Institute, under contract with HUD, conducted a study using the paired testing technique. In the paired tests, two individuals of different races who were equally qualified in every way were matched together. Posing as homebuyers, the two then inquired about the availability and terms for home mortgage loans. The pilot test results have shown that in both Los Angeles and Chicago, African American and Hispanic homebuyers face a significant risk of receiving less favorable treatment than equally qualified whites when inquiring about mortgage financing.

Subprime Lending

Subprime loans are intended to make homeownership possible for many families who have blemished credit histories or who otherwise fail to qualify for prime, conventional loans. Data shows that blacks are much more likely than whites to get a subprime loan, and many of the borrowers who take out these loans could qualify for loans with better rates and terms.  In one government study, in African American neighborhoods, 51% of the refinanced mortgages were subprime; compared to only 9% in predominantly white neighborhoods.  Because of this troubling data, subprime loans can raise fair lending concerns.  It is important, if you are offered a subprime loan, to shop around and make sure you are getting the most favorable loan terms possible for your situation.  If you are offered a subprime loan even though your credit history qualifies you for better terms and you have reason to believe that discrimination was a factor, you can contact HUD to file a fair housing complaint.

Predatory Lending

Some lenders, often referred to as predatory lenders, saddle borrowers with loans that come with outrageous terms and conditions, often through deception. Elderly women and minorities frequently report that they have been targeted, or preyed upon, by these lenders. The typical predatory loan is: (1) in excess of those available to similarly situated borrowers from other lenders elsewhere in the lending market, (2) not justified by the creditworthiness of the borrower or the risk of loss, and (3) secured by the borrower's home.

Examples of predatory lending:

• Excessive fees – A predatory mortgage has high and hidden loan fees, often in excess of 5% of the of the total loan amount. 
• Selling properties for much more than they are worth using false appraisals.
• Encouraging borrowers to lie about their income, expenses, or cash available for down payments in order to get a loan.
• Knowingly lending more money than a borrower can afford to repay.
• Charging high interest rates to borrowers based on their race or national origin and not on their credit history.
• Charging fees for unnecessary or nonexistent products and services – examples of types of products a lender may try to pressure a consumer to add on: fire and hazard insurance, life insurance, disability insurance, and insurance where premiums are paid in advance.
• Pressuring borrowers to accept higher-risk loans such as:
•  Balloon loans
• Interest only payments
• Steep pre-payment penalties – can keep a borrower trapped in a bad loan with no ability to refinance
• Targeting vulnerable borrowers to cash-out refinance offers when they know borrowers are in need of cash due to medical, unemployment or debt problems.
• "Stripping" homeowners' equity from their homes by convincing them to refinance again and again when there is no benefit to the borrower.
• Mandatory arbitration – makes it illegal for the homeowner to take legal action against their lender; only right the borrower has is to take their grievances to arbitration.

Tips for Consumers:

• Get information about the prices of other homes in the neighborhood. Don't be fooled into paying too much.
• Shop for a lender and compare costs. Be suspicious if anyone tries to steer you to just one lender.
• Do NOT let anyone persuade you to make a false statement on your loan application, such as overstating your income, the source of your down payment, failing to disclose the nature and amount of your debts, or even how long you have been employed. When you apply for a mortgage loan, every piece of information that you submit must be accurate and complete. Lying on a mortgage application is fraud and may result in criminal penalties.
• Do NOT let anyone convince you to borrow more money than you know you can afford to repay. If you get behind on your payments, you risk losing your house and all of the money you put into your property.
• Never sign a blank document or a document containing blanks. If information is inserted by someone else after you have signed, you may still be bound to the terms of the contract. Insert "N/A" (i.e., not applicable) or cross through any blanks.
• Read everything carefully and ask questions. Do not sign anything that you don't understand.

Filing a Complaint

If you have experienced lending discrimination, you can visit HUD’s housing discrimination complaint website to file a complaint or learn more about the complaint process.

The work that provided the basis for this publication was supported by funding under a grant with the U.S. Department of Housing and Urban Development. The substance and findings of the work are dedicated to the public. The author and publisher are solely responsible for the accuracy of the statements and interpretations contained in this publication. Such interpretations do not necessarily reflect the views of the Federal Government.

Your home is likely your most valuable asset, and you have an interest in maintaining ownership, protecting your equity and preserving your credit rating. This manual describes how you can better protect yourself from scams and deceptive business practices aimed at homeowners. Mortgage fraud, foreclosure rescue schemes and other deceptive practices have invaded our state, offering empty promises and stealing the dream of home ownership. Both Idaho and federal law offer some protections against mortgage fraud. Some of these laws are discussed in this manual. However, prevention is the best remedy for combating fraud, and you can best protect yourself by understanding your rights and obligations as a homeowner.

Predatory lending comes in a number of different forms. In each instance, however, a financial institution takes unfair advantage of a consumer’s financial needs by charging high interest rates and other unconscionable fees and charges...

Buying or refinancing your home may be one of the most important and complex financial decisions you'll ever make. Many lenders, appraisers, and real estate professionals stand ready to help you get a nice home and a great loan. However, you need to understand the home buying process to be a smart consumer. Every year, misinformed homebuyers, often first-time purchasers or seniors, become victims of predatory lending or loan fraud.

The Center for Responsible Lending has created a list of five "Signs of Predatory Auto Finance Loans" that you may view below or view on their webpage: https://www.responsiblelending.org/issues/signs-predatory-auto-finance.

Signs of Predatory Auto Finance Loans

Don't get into car trouble: Learn to spot predatory auto finance loans.

Sign 1 - Dealer Kickbacks

A car buyer initially qualifies for a lower interest rate or “buy rate.” The lender willing to fund the loan for the buyer allows the dealer to increase the “buy rate” at the dealer’s discretion. The dealer has a powerful incentive to increase the interest rate, as most of the extra interest is “kicked back” to the dealer.

Sign 2 - Loans Packed With Junk Fees

Dealers inflate the overall price of the car loan through overpriced add-on products – often sold in packages –including “GAP” insurance, vehicle service contracts, credit life and disability insurance, rust proofing, theft deterrent packages, and “window etching.” By inflating vehicle cost and loan size, the potential loan kickback for the dealer is increased.

Sign 3 - “Yo-yo” Sales

The buyer is either convinced to enter into or unwittingly placed in a conditional sale agreement rather than a final sale. After the buyer drives the vehicle home, the dealer later claims to be unable to fund the loan at the agreed-upon terms. The buyer is required to return the car and renegotiate an often more costly loan. Often, the buyer is told that their down payment is non-refundable and/or their trade-in has already been sold.

Sign 4 - Buy Here - Pay Here

Buy Here Pay Here (BHPH) dealerships typically finance used auto loans in-house to borrowers with no or poor credit histories. The average APR is much higher than a bank or credit union loan. BHPH dealers expect much higher default and repossession rates. Instead of responsibly financing affordable cars, the business model depends on churning the same vehicles (many would be classified as “lemons”) to local buyers as many times as possible.

Dealers usually require a disproportionate percentage of the car’s actual value for downpayment and pack the loan with unnecessary fees to make more money up front.

Sign 5 - No Option For Justice In Court

“Mandatory arbitration” clauses essentially waive the customer’s right to sue and appeal in court. In simple terms this means that if you have a valid complaint with a car dealer, you won’t be allowed to take action through a court of law. Instead, companies require their customers to pursue complaints through an arbitrator—a process that is more likely to favor the dealer.

The Center for Responsible Lending has created the following "8 Signs of Predatory Mortgage Lending", which you may find below or on their website: https://www.responsiblelending.org/issues/8-signs-predatory-mortgage. 

Eight Signs of Predatory Mortgage Lending

Sign 1 - Big Fees

"Points" or "discount points" are the lender's fee for making the loan. Generally, a charge of three points—3% or less of the loan amount—is a good deal, including such necessities as an appraisal and title insurance. Get your credit score in advance and research typical fees in your area.

Sign 2 - Penalties For Paying Off Early

A "prepayment penalty" requires you to pay a steep fee before refinancing. The penalty period can last several years and cost thousands of dollars.

Sign 3 - Inflated Interest Rates From Brokers

Brokers can make more money if they boost the interest rate above the lender's actual charge. Ask if your broker will be paid a "yield-spread premium" – a financial reward lenders pay for inflated interest rates.

Sign 4 - Steering And Targeting

Predatory lenders often target senior citizens and people of color to place them in unnecessarily expensive loans. Don't respond to ads that say bad credit doesn't matter, and be especially wary of lenders or brokers who contact you or those who try to rush you into decisions.

Sign 5 - Adjustable Interest Rates That "Explode"

Beware of adjustable-rate loans that can rise significantly, especially if it isn't possible for the interest rate to go lower, only higher. Make sure you understand the worst-case scenario for future payments. And don't count on a future refinance to rescue you from an unaffordable loan.

Sign 6 - Promises To Fix Problems With Future Refinances

Predatory lenders are notorious for selling bad deals by promising that they will refinance the loan later. If a loan stretches you too much now or in the future, just say no.

Sign 7 - Repeated Refinances That Drain You

Repeated refinances—"flipping"—mean you lose more money in points and fees every time. Don't be tempted by a bit of cash when you might end up owing even more on your house, losing valuable equity, and paying more than necessary.

Sign 8 - Not Counting Taxes And Insurance

Know in advance whether your monthly mortgage payment will include the costs of property taxes and insurance (i.e., whether the lender has established an escrow account for these costs). Unscrupulous lenders make house payments seem artificially low by not counting all costs—which you will be required to pay.

Reverse mortgages are becoming popular in America. HUD's Federal Housing Administration (FHA) created one of the first. The Home Equity Conversion Mortgage (HECM) is FHA's reverse mortgage program which enables you to withdraw some of the equity in your home. The HECM is a safe plan that can give older Americans greater financial security. Many seniors use it to supplement social security, meet unexpected medical expenses, make home improvements and more. You can receive free information about reverse mortgages in general by calling AARP toll free at (800) 209-8085. Since your home is probably your largest single investment, it's smart to know more about reverse mortgages, and decide if one is right for you!

A predatory mortgage is a needlessly expensive home loan that provides no financial benefit to the gorrower in return fo the extra costs. In many cases, homeowners are deceived about the loan's true costs and terms or are pressured into signing loans they cannot afford. Many of these homeowners lose their homes to foreclosure.