Avoiding Predatory Lending. Knowledge is your best protection.
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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 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

Read on to get better educated about these threats and learn how to avoid becoming the latest prey.

Be sure to ask about any loan terms or fees you do not understand. If you're confused, review the loan with a housing counselor prior to signing any documents.
Review the rates and terms from several lenders prior to committing to a particular option. Pay particular attention to a loan's ARR or Annual Percentage Rate which give an idea of the total annual cost of the loan with fees included.
Understand the homebuying process and the critical decisions you will need to make. Sign up for VHDA's Homeownership Education program and get the information you need.
Read and understand all mortgage documents thoroughly before signing. Never falsify any information or allows others to do so.
Find out if the loan you are considering has a prepayment penalty. Do not accept a prepayment penalty unless the loan has significantly better terms than a loan without one.
Know your legal rights when it comes to fair lending. In particular, the Federal Truth in Lending Act, RESPA and HOEPA.

Subprime vs. Predatory Practices

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 which 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 below. For your convenience, you may go to their website to access the Official Consumer Complaint Form online.
Consumer Protection HOTLINE
Toll free in Virginia: 1.800.552.9963 or 804.786.2042
Fax: 804-225-2666

Additional Links of Interest

Federal Trade Commission
 U.S. Department of Housing and Urban Development

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. More...

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.