Protecting Yourself from Predatory Mortgage Lending
The New Mexico Regulation and Licensing Department Financial Institutions Division works to protect homeowners by enforcing the New Mexico Home Loan Protection Act, which prohibits certain abusive mortgage lending practices and provides remedies for borrowers who have been victimized by unscrupulous lenders. The Department accepts complaints from consumers regarding lenders operating in New Mexico, and attempts to mediate disputes between borrowers and lenders. Complaints involving potential fraud are referred to the state Attorney General.
What is Predatory Lending?
Avoiding the Predator’s traps
Trapped by your ARM?
Help for borrowers: Don't Get Burned Again!
Other resources: More Help for Homeowners and Homebuyers
Report Predatory Lending
What is Predatory Lending?
Most mortgage lenders are reputable businesses that deal fairly with their clients. Unfortunately, there are also some unscrupulous lenders who victimize homeowners by:
- Using deceptive marketing to encourage consumers to borrow more than they can afford to repay, at unfavorable terms;
- Making loans without regard to the borrower’s overall financial health or ability to repay,
- Disguising or concealing fees, commissions and costs; and
- Structuring loans to strip the homeowner of his or her equity in the property.
Predatory or abusive lending practices can include:
- “Flipping” or repeatedly refinancing a loan within a short period of time and charging high points and fees with each refinance;
- Packing a loan with single premium credit insurance products, such as credit life insurance, disability, or unemployment coverage, and not adequately disclosing the cost of that insurance;
- Charging excessive rates and fees to a borrower who actually qualifies for lower rates;
- “Teaser” interest rates that offer artificially low monthly payments for the first few months or years but are then are adjusted upwards to higher than market rates;
- Balloon payments that require a large lump sum payment at the end of the term of the loan, forcing the homeowner to refinance at excessive cost or risk foreclosure.
- Prepayment penalties that make it prohibitively expensive for the homeowner to refinance the loan on better terms
Avoiding the Predator’s Traps
1. Shop around. Talk to several lenders to find the best loan for which you qualify. A loan may appear to be a great deal – until you compare it with loans offered by other companies.
2. Understand the loan terms. Compare the APR (annual percentage rate) of loans from different lenders. The APR takes into account both the interest rate and the points and fees of the loan. Ask for written estimates that include all points and fees. State and federal laws require lenders to provide you with a clear explanation of the terms of your loan. If you have difficulty understanding financial or legal terms, or if you are not fluent in English, ask someone you trust to review the documents with you.
3. Ask about prepayment penalties. Prepayment penalties should be a choice, not a requirement.
4. Make sure documents are correct and complete. Never sign documents that contain incorrect or false information – and be extremely suspicious of anyone who offers to falsify information to help you qualify for a loan. Never sign a contract with blank spaces the lender promises to “fill in later.”
5. Ask about fees. Question any items in the contract you don’t understand or didn’t ask for. Borrowers should also beware if they are told that single premium credit insurance is required get a loan, or that purchasing that insurance will help loan approval. Carefully review every fee charged and compare with different lenders.
6. Work with credit counselors. A borrower should get all the facts before deciding to combine credit card or other debts into a home loan. But beware of credit counseling/ credit consolidation scams – not all credit counseling agencies are acting in your best interests.
7. Don't sign until you’re sure! A home mortgage may be the biggest financial commitment the average person ever makes. If any fees or charges differ from what was previously disclosed to you, delay the closing until all terms of the loan are clearly understood.
Trapped by Your ARM?
Many homeowners who obtained an Adjustable Rate Mortgage (ARM) in recent years are struggling to make their monthly payments now that the interest rate they are paying has been adjusted upwards. If you are beginning to feel you have “bitten off more than you can chew” by borrowing more than you can now afford to repay, there are still some actions you can take to save your home from foreclosure.
1. Try to work out a repayment schedule with your lender. A reputable lender should be willing to work with you to set payments you can afford rather than foreclose on your home. If you are in financial difficulty, it’s better to attempt to renegotiate the deal now than to wait until you are too far behind in your payments. Contact your lender as soon as you realize you’re having problems meeting your monthly payment.
2. Refinance before it’s too late. Shop around for a reputable lender who can help you into a loan with a fixed interest rate. Check to find out if you are eligible for a Federal Housing Authority (FHA) insured loan. FHA lenders are required to follow foreclosure prevention procedures designed to assist the homebuyer in keeping his or her home.
3. Talk with a credit counselor for help in making up a budget and finding ways to help you manage your finances. You can find a counselor through Consumer Credit Counseling Services http://www.cccssouthwest.org/
4. Talk with a housing counselor. The New Mexico Mortgage Finance Authority http://www.housingnm.org/ has partnered with organizations around the state to provide counseling to the first time homebuyer. The list of counselors is at http://www.housingnm.org/myHome/Homebuyer/
5. The federal department of Housing and Urban Development http://www.hud.gov/ also supports some housing counseling agencies that provide free assistance about how to keep your home out of foreclosure. The list of counselors is at http://www.hud.gov/offices/hsg/sfh/hcc/hcs.cfm?webListAction=search&searchstate=nm
6. Sell your present home, pay off the mortgage and use your remaining equity to purchase a more affordable place to live.
7. As a last resort, talk with a bankruptcy lawyer. Federal bankruptcy law protects your investment in your home, your retirement savings and other essential assets. A Chapter 13 or Chapter 7 bankruptcy filing may be your final alternative to salvage some of your investment and rebuild your financial affairs.
For more information about avoiding foreclosure, see “You Can Avoid Foreclosure and Keep Your Home” http://www.fha.gov/foreclosure/index.cfm
Help for Borrowers: Don’t Get Burned Again!
Unfortunately, there are vultures out there ready to take advantage of families that are already in financial difficulties. Rescue scams come in a variety of different disguises. Sometimes a “credit counselor” will charge high fees for doing no more than making a few phone calls or sending out a form letter on the borrower’s behalf.
Another common scam is the “Lease/buyback” offer, in which homeowners are tricked into signing over title to their property on the understanding that they will be able to continue to live in the house as a renter and eventually buy it back through the lease payments. In reality, the former owner is evicted and the “rescuer” winds up owning the property for a fraction of its true value.
To avoid these and other scams:
- Never deal with anyone who contacts you with offers to help if you are already in foreclosure. Ignore those street signs and ads that promise "We buy homes!" or "Save Your Credit."
- Never sign any documents related to your home—or add a co-owner to your deed—without first getting advice from an independent source you trust.
- Be sure you thoroughly understand any document you are asked to sign. Don't rely on what someone says they mean. Get all promises in writing, get copies of everything you sign, and never leave any blanks in the document.
- Check with the Financial Institutions Division to make sure your loan agent is employed by a lender licensed by the state.
Other Resources:More Help for Homeowners and Homebuyers
TO FILE A COMPLAINT ABOUT A MORTGAGE LENDER OR BROKER
Consumer Credit Counseling Services
Don’t Borrow Trouble – a guide to avoiding predatory lending
New Mexico Coalition for Financial Education
