Ohio Department of Aging

• Older Ohioans & Families
• Providers & Professionals
• Advocacy & Legislation

• Home
• Info Center
• About Us

Don't Fall Prey to a Predatory Lender

April 2006

After years of diligently paying their mortgages, many older Ohioans have a good deal of equity in their homes. Many may decide to use that equity to finance home repairs, medical care and other needs. Unfortunately, some unscrupulous lenders will take advantage of these consumers by selling them equity loans with high fees, hidden payments or other unfavorable terms that could cause them to lose their homes.

Predatory lenders take advantage of vulnerable borrowers, such as people on fixed incomes. Through deception or aggressive sales tactics, they convince borrowers to agree to unfair and abusive loan terms that benefit only the lender.

As a result, the consumers find themselves locked into a loan that they cannot possibly pay back. When a borrower defaults on a loan, the lender would normally take a loss because foreclosure generally yields far less than market value for the home. However, in predatory lending, the lender profits from foreclosure because the borrower often owes less than the house is worth. Then, when the house is sold, the lender makes the profit - not the borrower.

The National Consumer Law Center offers tips to recognize and avoid predatory lending practices.

• Beware of home improvement scams. If you must borrow money to repair your home, do not let the home improvement company arrange a loan on your behalf. Home improvement contractors often get a commission for steering seniors to predatory mortgage lenders.
• Avoid loans with high interest rates, fees or closing costs. If you are unsure if a closing fee or cost is legitimate or fairly priced, seek help from a financial advisor before signing.
• Avoid loans with "balloon" payments. A balloon payment is a large sum of money due at the end of the loan term. Lenders use balloon payments to make a loan appear more appealing by highlighting the low monthly payments while downplaying the total cost of the loan. Homeowners who cannot meet the balloon payment may lose their home to foreclosure, or be forced to refinance the loan at an increased cost.
• Be wary of requests to purchase credit insurance. Some lenders will try to sell credit life insurance or credit accident and health insurance as part of the loan. This insurance may sound useful, but often provides more benefit to the lender than the borrower.
• Use mortgage brokers wisely. Ask if the company you are using is a broker or a lender, if it is a broker ask how he or she will be compensated. If you are not sure, call the Ohio Department of Commerce at 1-866-278-0003 to ask if the broker is licensed by the state.
• Shop around before you refinance with the same lender or their affiliate. Predatory lenders can make money by charging unnecessary fees when you refinance.
• Be diligent when taking out a loan. Do your homework. If you don't know if a loan is a good deal, seek the advice of someone who knows.

The Attorney General's Consumer Protection section can answer questions about your rights as a consumer. Contact them at 1-800-282-0515 or online at www.ag.state.oh.us.

NeighborWorks^® America and Credit Counseling Resource Center offer a special nationwide homeowner hotline. Call 1-888-995-HOPE for assistance.