If you are confronted with financial problems, talk to your lender and credit PREDATORY LENDING advisor right away! Prepare Yourself. Protect Your Future. They may be able to help you resolve your financial difficulties. Federal Home Loan Bank of Chicago 200 E. Randolph Drive … Potential Targets of Predatory Lending Chicago, IL 60601 Predatory lending is abusive and/or www.fhlbc.com illegal lending practices by lenders, • Anyone can be a target, but the most commonly mortgage brokers, home improvement targeted groups are minorities, seniors, and single contractors, realtors, or appraisers that women. take advantage of unsuspecting • Borrowers who have or think they have poor borrowers. Predatory lenders offer credit or who live in a location without many unfair loans that exploit a borrower's lending options can be led to believe that they lack of knowledge or they handle cannot get a better deal than what is offered by a borrowers with deception, fraud, or predatory lender. high pressure sales approaches. This • People in need of cash and who have home brochure provides an overview of equity are targeted for "cash out" home equity loans common predatory practices so that to pay for medical expenses, automobile payments or credit card debt. borrowers can be both aware and prepared to avoid them.

The suggestions provided to you in these anti-predatory For more information regarding lending materials are for information purposes only and are not meant to be exhaustive. These suggestions should not predatory lending, visit the Federal replace consultations with your attorney, accountant, or other financial representatives regarding your financing options or Home Loan Bank of Chicago's website at your relations with your lender, mortgage broker, home fhlbc.com. improvement contractor, realtor, or appraiser. REDATORY ENDING IS Walk away from high pressure or confusing sales P L … • Home Improvement Scam. Unsolicited contrac- tactics. If you are qualified for the loan now, you tors who contact homeowners door-to-door, by will still be qualified after you have time to review … Packaging an Unfair Loan mail or via telephone may offer unneeded or over- the documents and consult with an experienced And Making the Hard Sell priced home repairs. The contractor often works mortgage advisor. 5 with a lender to put together a predatory deal. • High-Risk Loans. Borrowers may be pressured Typically, the contractor requires an up-front Consult with an attorney or mortgage advisor to accept higher-risk terms such as adjustable rate payment for work and then fails to complete the about the terms of the loan. Despite what your mortgages, interest only loans, balloon payments, repairs, leaving the borrower with a bad loan and a broker, real estate agent or home improvement con- prepayment penalties, mandatory arbitration, or home remaining in need of repair. tractor might say, they are not obligated to work for credit insurance. your best interests. It is best to get an independent THE BORROWER’S DOZEN third party to review6 the loan. • Out-and-out Fraud and Abuse. Lenders may falsify appraisals, income verification, or fill in Know your credit. Request a copy of your credit Do not falsify information. Deception on a mort- blanks with terms not agreed upon by the borrower report. Make sure the information is accurate. It gage application about income, debt, employment when originating a loan. only costs $10-$15 per report. Each agency has a 3- history, or the value of the home is fraud and is in-1 package that includes all three reports for subject to criminal penalties. • Excessive or "Packed" Fees. Lenders may over- 7 between $30-$40. This is a small price to pay to be charge borrowers or charge for services that were sure that your credit record is correct before Ask in advance for an "attorney's package" of the not provided. As a rule, fees should not exceed 3% 1 submitting an application for a mortgage loan. closing documents. These documents should be of the loan amount (4% for FHA or VA loans). Fees given to you 24 hours before the loan closing. can also be "packed," or rolled into, the loan with- Equifax Experian TransUnion Postpone the closing if they cannot get you the out the borrower's knowledge. Packed fees increase 1-800-685-1111 1-888-397-3742 1-800-916-8800 required documents. You should read all of the www.equifax.com www.experian.com www.transunion.com the total loan amount and leave the borrower not mortgage documentation8 before signing. only paying the fee but also interest on the fee. Seek advice. Take a homeownership counseling Ask questions. Ask the lender to show you where course to learn more about credit, budgeting, and • Bait and Switch. The terms that were agreed the terms are located. Do not sign documents until the mortgage process. Another good way to learn upon before the closing are not the terms recorded your questions are answered to your satisfaction about financing a home is to discuss the experience on the mortgage. Borrowers are either pressured to and you fully understand the terms of the loan. sign the new deal at closing or may sign without with family and friends2 who have already 9 double checking the paperwork. purchased a home. Do not sign any documents with blanks or infor- mation that is different from what was originally Prepare a budget. Understand your income and • Debt Consolidation. When lenders pressure a negotiated. Cross out blanks and ask for explana- expenses and only borrow within your means. Do refinance so that the homeowner can "cash out" the tions about terms that have been changed. If the not take out a loan for more money than you need. loan for medical, automobile, credit card, or unem- explanations provided are confusing, incomplete, If you get behind on payments, you could lose your ployment expenses, it increases the debt burden. or not to your satisfaction,10 do not sign the docu- home and all of the equity earned. As a rule, your Typically, borrowers refinance their loans to reduce ment. mortgage payment should3 not exceed 30% of your monthly payments, but it is not unusual for a debt consolidation refinance to increase monthly gross income. Understand all of the terms of the loan. It is not enough to know the monthly payment and interest payments. Shop around for the best deal. Visit several rate. You should know the annual percentage rate respectable lenders to compare interest rates, fees, • Loan Flipping. Loans are refinanced repeatedly (APR), total amount of the loan, fees, points, and and other loan terms. There is a good chance that after only a short period of time, with each new term length. Also be sure to ask about credit you qualify for a conventional loan from a refinance accruing fees and sometimes prepayment insurance, balloon payments, mandatory arbitration traditional lender. Be wary of lenders who claim 11 penalties. Refinances are often presented as special clauses, and prepayment penalties. options that can relieve the borrower with a lower that you cannot get a 4better deal from other lenders or lenders who contact you either by mail, interest rate and payments, but in reality, it Do not leave the closing until you are given telephone or door-to-door. increases total debt because refinancing and copies of all of the documents that you signed. origination fees are added to the loan. 12