FOR IMMEDIATE RELEASE
April 9, 2003
Contact:
Bob Halloran
Director of Marketing
(804) 343-5507
Avoiding Predatory Lending
- - -
Knowledge is your best protection
RICHMOND, Va. (April 9, 2003) –
What
Is Predatory Lending?
In recent years, Predatory Lending has gained considerable media attention.
Yet because of its complexity it is difficult to define in precise terms.
In general, Predatory Lending involves fraudulent or abusive practices
on the part of a lender or broker that strip away equity from the consumer,
increasing the risk of foreclosure. Key characteristics include:
- Encouraging a borrower to frequently refinance in order to charge excessive fees and points to the financial detriment of the borrower ("Loan Flipping")
- Lending based on a borrower's assets rather than the borrower's ability to repay
- Deceptive or fraudulent marketing tactics or representations
Top 10 Tips on avoiding Predatory Lending
1) Ask Questions
2) Shop Around
3) Be an Educated Consumer
4) Read before you sign
5) Avoid Balloon Payments
6) Avoid Prepayment Penalties
7) Know Your Rights
8) Don't hesitate to say 'No'
9) Be Prepared- Build your credit
10) Be wary of targeted advertising
Predatory Lending vs. Subprime Lending: From the 1990s to today there has been tremendous growth of Subprime or Sub-par lending market. Subprime involves lending to borrowers with blemished, less-than-perfect credit or insufficient credit history who typically would not qualify for loans in the conventional prime market. To offset the increased risk the lender charges higher interest rates on these loans. Subprime lending has played an important role by allowing access to credit for home purchase or improvement to many consumers who would not have qualified otherwise.
Unfortunately,
studies have shown that Subprime loans are disproportionately concentrated
in low-income and African-American neighborhoods, indicating a lack
of competition from prime lenders in these areas. While the majority
of Subprime loans are not predatory, it is in this segment of the market
that predatory practices are typically found.
The concern is that the Subprime borrower may have qualified for a more
suitable loan with significantly better terms. Predatory loans are those
that are unsuitable for the borrower and contain abusive terms that
trap the consumer with one or more of the characteristics mentioned
above.
Where
to go for Help
If you believe you have been victimized by Predatory Lending Practices
in Virginia, contact the Office of Consumer Affairs.
Consumer Protection HOTLINE
Toll free in Virginia: 1.800.552.9963 or 804.786.2042
Fax: 804.225.2666
Additional
Resources
Federal Trade Commission
U.S. Department of Housing and Urban Development
VHDA's
Stance
We are committed to addressing the problem of predatory lending on three
fronts:
Educational
Outreach
VHDA's Homeownership Education Program provides free training designed
to help you prepare to make the important choices related to homeownership.
VHDA offers free Homeownership Education Classes throughout the state
that explain credit reports, the loan application process, budgeting
and other topics related to purchasing a home. Since the program began
in 1993, more than 36,000 participants have graduated from the six-hour
course.
Innovative Products
Our Fresh Start initiative is targeted to those who have experienced
obstacles to homeownership due to past credit issues. By incorporating
extensive counseling, VHDA is able to offer this alternative to sub-prime
lending products.
Periodic Review of Originating Agents
In addition to extensive approval requirements for our originating agents,
VHDA takes a proactive approach by performing periodic lender audits
and individual review of each loan we fund to ensure that all applicable
fair lending laws are met.
# # #
Contact: Bob Halloran, Director
of Marketing, VHDA, (804) 343-5507 for additional information or to
arrange an interview with a VHDA representative.