The FDIC defines predatory lending as the imposition of unfair and deceptive loan terms on a borrower. If a lender uses unfair, deceptive, or fraudulent practices in making mortgage loans or routinely violates the terms in ways that make it impossible for a borrower to repay the loan, it may be guilty of predatory lending. Examples of predatory lending include:
- Misapplication of mortgage payments;
- Incorrect or unauthorized interest rate increases;
- Undisclosed pre-payment penalties;
- Undisclosed balloon payments;
- Excessive loan origination fees;
- Excessive late fees; and
- Failure to provide federally and state mandated loan disclosures.
The victims of predatory lending tend to be poor minorities with little knowledge and understanding of mortgage practices. Predatory loans tend to have higher loan origination fees and interest rates and contain exceedingly burdensome terms.
Are All Subprime Mortgages Predatory Loans?
Subprime loans are generally made to borrowers who are unable to qualify for traditional mortgage financing due to poor credit, low income, or other factors which make them high risk. According to Standard & Poor’s, 16.8% of all mortgage loans made in 2006 where subprime loans. But not all subprime mortgages are predatory. A subprime loan is predatory only where the borrower could have qualified for a “prime” loan.
Predatory Lending and Foreclosure
Predatory lending practices have played a substantial role in the increase in the foreclosure rate. Victims of predatory lending practices have a higher default rate than other borrowers. This means that there are more foreclosures among borrowers with predatory loans than among borrowers with non-predatory loans.
Some states have enacted legislation meant to curb predatory lending. Violations of anti-predatory lending laws may be raised as a defense to a foreclosure action. Moreover, because predatory lending practices frequently involve violation of state and federal lending laws and consumer protection laws, these violations may also be raised as a defense to a foreclosure action. The following are a few of the laws which may be violated when a lender makes a predatory loan.
- Real Estate Settlement Procedures Act (RESPA);
- Truth-in-Lending Act (TILA);
- Home Ownership and Equity Protection Act (HOEPA);
- Equal Credit Opportunity Act (ECOA); and
- State foreclosure laws.
Get Legal Help
If you believe you have been the victim of predatory lending practices and are facing foreclosure, you should consult with a qualified foreclosure defense attorney. Your attorney will review your loan documents and the facts surrounding the entire loan application and closing process to determine whether you can raise predatory lending as a valid defense to the foreclosure action.
