Don't Be Victimized by Predatory Lenders

Sept. 29, 2006 — -- As the housing market sours or softens -- whatever you want to call it -- some Americans are finding that they overpaid for their homes, and they're struggling to make their monthly mortgage payments.

This is the kind of time when predatory lenders swoop in for a bite of you.

They claim they can rescue you with too-good-to-be-true loans, but those loans turn out to be abusive.

If buying a home is the American dream, then predatory lending is the American nightmare.

Predatory lending typically occurs in refinancing deals. Unscrupulous lenders cause people to lose their homes, and neighborhoods to lose their luster.

Aggressive mortgage brokers target the poor, the elderly, minorities and women, but it can happen to anyone.

Charles K. is a combat veteran who lives on a fixed income. He was a month or two behind on his mortgage, so he wanted to refinance in hopes of arranging a lower monthly payment. The mortgage broker promised Charles he could lower his payment from $980 a month to $880.

The broker advised Charles to stop making payments to his old mortgage company, because his new loan would be ready soon. But then the broker waited more than a month to schedule Charles' closing.

At that closing, Charles learned his new monthly payment was $1,250 -- hundreds more than the old payment he had been struggling to make. By now, Charles' old mortgage company was threatening to foreclose on his home, so he felt trapped and he signed for the new loan.

When I investigated Charles' case, I learned his monthly payment was jacked up illegally.

By law, the broker was supposed to inform him the price was going up. The reason the monthly payment was so high was because the brokerage firm charged $13,000 to process the loan. That's pure profit for the broker. This abusive fee was then rolled into Charles' loan, so he ended up owing $146,000 on a house that was only worth $126,000.

Charles couldn't afford his new monthly payments. Eventually, he declared bankruptcy, and the bank sold his home on the courthouse steps.