HOME REFINANCE PREDATORY PRACTICES YOU SHOULD BE AWARE OF AND AVOID

According to the FDIC, predatory home refinance has been more of a problem with nonbank mortgage lenders and companies that specialize in marketing to first time home buyers or to homeowners  with poor credit shopping for refinancing loan rates. These companies may include some mortgage brokers, home improvement contractors and finance companies. Not every nonbank company is a predator but the risk is higher.

Here are some examples of predatory home refinance practices to look out for:

 Bait-and-switch schemes: The home refinance lender may promise one type of mortgage loan or a competitive interest rate, but at the closing, and without warning, gives you a different one. They're counting on you to sign the refinancing closing docs without reading them. Sometimes the unfavorable terms will not kick in for months after the closing.

"Equity stripping": The home refinance lender encourages you to borrow heavily from your home equity (the amount you own free and clear of your mortgage) as an easy way to get additional money, consolidate debt, or fund home improvements, knowing that the fees and payments are so high you may not be able to make them. You dramatically reduce your home equity and, in the worst case, the lender forecloses on the loan, takes possession of your home, and strips you of all your equity.

"Loan flipping": The refinance lender encourages you to get additional cash by refinancing your mortgage again and again. This tactic significantly increases your debt because fees (often exorbitant) are tacked on to each loan transaction, and you may pay a higher interest rate than with your original mortgage loan. You become saddled with higher payments, higher debt, and the risk of losing your home.

"Loan packing": The refinance lender adds charges into the mortgage loan contract for overpriced items or items you don't need or didn't ask for, often totaling thousands of dollars. Examples: The lender may pressure you into buying insurance you don't need or trick you into paying for phony services.

Home improvement scams: A contractor talks you into costly or unnecessary repairs, steers you to a high-cost mortgage lender to finance the job, and arranges for the loan proceeds to be sent directly to the contractor. All too often, the contractor performs shoddy or incomplete work, and the homeowner is stuck paying off a long-term loan where the house is at risk.

Mortgage servicing scams: After getting the loan, you're told you owe additional money for bogus taxes, insurance, legal fees or late fees. Or, if you try to pay off the loan, the lender provides inaccurate information that causes you to pay too much or discourages you from refinancing with another lender.
 

Do not sign a loan agreement until after you understand the terms of the loan, the fees, and your obligation to repay. For example, know whether your loan agreement contains a "balloon payment" or a prepayment penalty or if the interest rate can change, and by how much.. If the home refinance lender cannot answer your questions

 be prepared to walk away. There are plenty of home refinance lenders.

You may have up to three business days after signing a home refinance contract to change your mind and cancel the deal without penalty. Ask about it or check first with your state attorney general.

Get started on ethical home refinance today and assure yourself of the very best mortgage rate or home refinance program.