Predatory Lending Practices
Low-income families are also vulnerable to unfairly priced financial services such as loans, insurance and home mortgages. Called “predatory lending practices,” these are applied most often to low-income people or people of color. Although there is not one agreed-upon definition of predatory lending, these practices are usually categorized as follows:
• “Equity-stripping” mortgage fees – the borrower is charged exorbitant fees which are financed into the loan, resulting in higher payments, which are taken directly from the equity of the home when the borrower refinances or sells the home. Things to watch for: the borrower is required to buy single-premium credit insurance, is charged exorbitant up-front fees, and the mortgage includes prepayment penalties.
• Rate-risk disparities – the borrower is charged a higher rate of interest than his/her credit history would seem to justify.
• Excessive foreclosure – loans are made without regard to the borrower’s ability to pay. This results in higher rates of foreclosure and the loss equity in the home.
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