What is predatory lending?
Predatory mortgage lending typically takes place in what is called the sub prime market, where financial institutions extend high-priced loans to borrowers with troubled credit. The tricky issue is that this business practice is legitimate as long as overly aggressive techniques are kept out of the transaction.
What Constitutes as Predatory LendingPredatory mortgage lending occurs when abusive financial institutions target desperate, credit-impaired homeowners for high-cost loans. A disproportionate number of victims are older people, particularly older women living alone. The need to finance home repair projects or pay off credit card debt often provides easy access to the homeowner's equity. Often, foreclosure is the end result.
The business practice is considered predatory when vulnerable consumers are subjected to methods such as:- Charging unusually high interest rates and fees.
- Lending exorbitant amounts to people who clearly lack the ability to repay.
- "Flipping" a loan, which is encouraging a borrower to pay off existing loans by taking out yet another costly loan.
- Taking advantage of a borrower's inexperience, vulnerabilities and/or lack of information.
- Manipulate a borrower to get a loan that the borrower cannot afford to repay.
