What should I know about predatory lending?

Predatory lending refers to a variety of abusive lending practices that may occur singly or in combination: excessive or hidden fees, refinancing of loans at no benefit to the borrower, offering a loan knowing the borrower lacks the means to repay it, and using high-pressure sales tactics to sell a loan (U.S. Department of Housing and Urban Development (HUD)). It is usually undertaken by brokers, creditors, or even home improvement contractors. Most prevalent in the subprime mortgage market, borrowers typically use the collateral in their homes for debt consolidation or other consumer credit purposes.

While there is little information about the scope of predatory lending (Gramlich), it negatively impacts both individual borrowers and communities. Racial minorities, who may have trouble obtaining credit because of discrimination, are one target of predatory lenders. So are the elderly, who are income-poor but often have significant equity in their homes. (HUD 2003). The outcomes of unfair lending practices are severe. Predatory lending is likely to lead to the borrower becoming delinquent in payments or even be faced with foreclosure. Predatory lending also harms more than the borrower. Efforts to revitalize neighborhoods and promote home ownership are weakened when foreclosed homes occur in a neighborhood (HUD 2000).

Increasing consumer literacy about the basics of mortgage credit, how to shop among lenders, and how to best finance household debt is a necessary strategy for combating predatory lending. Nonprofit organizations play a significant role in educating borrowers before they take out a loan or a mortgage, counseling borrowers if they have trouble paying off a loan, and referring them to legal assistance if they have been a victim of a predatory loan. Consumer education is especially necessary for those who have little experience with the lending market. Consumers are urged to know the characteristics of Predatory Lending to avoid being a victim of such unscrupulous act.

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1. What is fair housing?
2. What practices are protected under the law?
3. What if I've been discriminated against?
4. What does housing discrimination look like?
5. What can housing discrimination feel like?
6. What can you do about housing discrimination?
7. What are my fair housing rights?
8. What should I know about predatory lending?
9. Where can I find more basic facts about the Fair Housing Act?