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Predatory Lending: How To Protect Yourself
By Arnold Mann, Mortgage Funding USA

In part one, we discussed the meaning of Predatory Lending and how to recognize it when it occurs. Predatory Lending is not easy to define as it takes all shapes and forms and attacks the rich, poor, educated, uneducated, young, and elderly, and occurs in all types of neighborhoods. Predatory Lending is an economic cancer that can rob a homeowner of the equity in their home or take a great interest rate and convert it into a rate that you, the homeowner, cannot afford. Whatever form Predatory Lending takes, it is preventable and in many cases it is curable. Your best defense against Predatory Lending is to be an informed borrower. You begin the process by determining what kind of mortgage you need and what kind of mortgage you want.

Before you begin the refinance or purchase process, you need to think about and answer some questions that are listed below. If you do not answer them honestly, then you might be swayed and lead down a mortgage process path that is not the best financial solution for you, and thus not the right mortgage. This could cost you thousands of dollars over the term of the mortgage.

Answer the following questions:
  1. What is my current mortgage rate?
  2. Do I just want a lower mortgage rate?
  3. Do I escrow for real estate taxes and insurance?
  4. Do I want to receive cash out at the closing?
  5. Do I want or need to pay off some credit cards or other debts?
  6. Do I have Mortgage Insurance on my current loan?
  7. How long do I intend to live in my home?
  8. What is my annual income and what is my spouse's annual income?
  9. Will our incomes remain steady? Will our jobs remain constant?
  10. If you are purchasing a home, how much money do you have for a down payment; how much money do you want to put down?
  11. How much house can I really afford to buy?
  12. Are you a Veteran and do you qualify for a VA loan?
  13. Are you a First Time Home Buyer?
  14. What are my (our) credit scores?
  15. Do I have anything on my credit report that might cause a Lender alarm?
  16. What are the real estate taxes on the property and what will the home owners insurance cost on the property?
  17. What is my home really worth?
By honestly answering these questions, you are on your way to determining the type of mortgage that best fits your financial circumstances. You are taking control of the mortgage process and not allowing it to take control of you, and thus you have provided yourself the best defense against predatory lending. You are an informed borrower. You know exactly what your financial situation is rather than being told by someone else what they think of your financial situation. You are taking control of the mortgage loan process.

How do you answer the above questions? You need to gather all of the following paperwork:
LET'S GET ORGANIZED
  1. Income documents - Copies of last two paychecks.
  2. Income documents - Copies of last two years W-2 forms.
  3. Income documents - Copies of last two years Federal Income Tax returns.
  4. Mortgage documents - If refinancing, a copy of your previous HUD-1 Settlement Statement.
  5. Mortgage documents - Copy of last month's mortgage statement.
  6. Mortgage document - If on Land Contract; Copy of Land Contract.
  7. Mortgage documents - If paying on Land Contract, copies of last 12 months cancelled checks to Land Contract holder.
  8. Miscellaneous documents - Copy of last months bank statement.
  9. Miscellaneous documents - Copy of most recent 401-K statement.
  10. Miscellaneous documents - Copy of most recent investment statements.
  11. Miscellaneous documents - Copy of Homeowners Insurance front page.
  12. Miscellaneous documents - Copy of real estate tax bill.
  13. Miscellaneous documents - Copy of Divorce Decree, if applicable.
  14. Miscellaneous documents - Copy of Child Support Agreement, if applicable.
  15. Miscellaneous Documents - Copy of Drivers License.
  16. Miscellaneous Documents - Copy of Bankruptcy papers, if you filed in the past 5 years and/or information is still being shown on your credit report.
  17. Miscellaneous Documents - Copy of the last appraisal on your home, if available.
  18. Miscellaneous Documents - Letter of explanation detailing the reason for any dings/challenges on your credit report - i.e.,You were out of work for 3 months because of illness or there are two late payments on a credit card and they are being disputed because the charges were not yours in the first place, etc.
If you need a free credit report, go to: www.annualcreditreport.com/cra/index.jsp. Once the questions are answered and you have gathered all of the above information, you are prepared to schedule a meeting with the loan professionals. Right before your meeting, check out mortgage rates for your particular financial situation by going to www.bankrate.com and see what the national averages are for your type of loan.

Lenders come in many different shapes and forms, from your local bank, Savings & Loan, Credit Unions, National Mortgage Lenders (i.e., Countrywide, Washington Mutual), Internet Companies (LendingTree, E-Loan), to Mortgage Bankers and Mortgage Brokers. As a consumer you have a wide selection. Each of the above can give you a great mortgage loan - if you have done your job and have determined in advance what you need and what type of mortgage loan you qualify for!

You've made your decision on the Lender you will use, checked the average rates, and now it's time for your initial meeting. The loan officer will begin by asking you many questions or start taking an application. You have at your fingertips all of the answers-this will be a surprise and thus will put the loan officer on the defensive since he is now dealing with an informed consumer. Inform him of the type of loan you are looking for (example: I want a 15 year fixed rate and I want $10,000 cash out after all expenses are included in the loan.) You have taken charge; you have directed him to one product and thus made his life easy. He should come back with a rate quote or payment based upon the information you've given. You should not have been charged one penny at this point in time. Once he quotes the rate, you need to ask him what he charges and a breakdown of the fees associated with the loan. You do not want this verbally but on a GOOD FAITH ESTIMATE (GFE) and a TRUTH IN LENDING STATEMENT (TIL). He is required by law to send you these documents within 3 business days of taking an application from you; if he does not or is reluctant to give you the GFE and TIL, move on to another Lender. The only way you can see or compare if you are receiving a great mortgage loan is by having the GFE and TIL to compare to another. These documents level the playing field. It gives you, the consumer, the ability to analyze which Lender's deal is best for you, or at the very least, what the costs are that are associated with the loan.

Once these documents are received take time to review them in detail. Ask questions about each item that is listed on the Good Faith Estimate, after all, this is your money. At this point you have enough information to compare one quote against another. Should you obtain another quote on your loan? Absolutely! This is another way to make sure you are not being taken advantage of by a Predatory Lender.

Part three of Predatory Lending will discuss what you can do if you have fallen prey to Predatory Lending. Until then, stay informed, ask questions, know your own situation, and take your time. This is one of the most important financial decisions of your life.

Arnold Mann
amann@mfundusa.com
http://www.mortgagefundingusa.net
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