Knowledge is Your Best Protection
What is it?
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 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 borrower’s financial disadvantage. (“Loan flipping”)
- Lending based on the borrower’s assets rather than the ability to repay.
- Deceptive or fraudulent marketing tactics or representations.
Read on to get better educated about these threats and learn how to avoid becoming the latest prey.
Where VHDA Stands
We’re committed to addressing predatory lending in two important ways:
VHDA’s Homeownership Education program provides free training to help you prepare to make the important choices related to buying a home.
Periodic Review of Originating Agents
VHDA requires extensive approval requirements for our originating agents. We also take a proactive approach by performing periodic lender audits and individual reviews of each loan we finance to ensure all applicable Fair Lending laws are met.
Top 10 Tips
1. Ask questions.
2. Shop around.
3. Be an educated consumer.
4. Always 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 practices.
Subprime vs Predatory Practices
From the 1990s to today, there has been tremendous growth in the subprime or “sub-par” lending market. Subprime involves lending to borrowers with blemished, less-than-perfect credit or insufficient credit history. These are borrowers who typically wouldn’t qualify for loans in the conventional prime market.
To offset increased risk, the lender charges higher interest rates on these subprime loans. Subprime lending has played an important role by allowing access to credit for buying or improving homes to many consumers who otherwise wouldn’t have qualified.
Unfortunately, studies have shown that subprime loans are disproportionately concentrated in low-income and African American neighborhoods. This indicates a lack of competition from prime lenders in these areas. While the majority of subprime loans aren’t predatory, this is the segment of the market in which predatory practices are typically found.
The concern is that the subprime borrower may have been able to qualify for a more suitable loan with significantly better terms. Predatory loans are those which are unsuitable for the borrower and contain abusive terms that trap the consumer.
Where to Go for Help
If you believe you've been victimized by predatory lending practices in Virginia, contact the Office of Consumer Affairs at the link below, or call the Consumer Protection HOTLINE.
Toll free in Virginia: 800-552-9963 or 804-786-2042