Beware… Predatory Lending

1
Beware Predatory Lending

• Avoiding Financial Frauds and Foreclosure

2
Acknowledgment

• The work that provided the basis for this
• presentation was supported by funding
• under a grant with the U.S. Department
• of Housing Urban Development.

3
Overview

• Understanding
• The state and federal laws that support fair
  housing and protect consumers
• The home buying process
• Types of Mortgages
• Predatory mortgage lenders sellers
• Risks of Subprime Loans
• Foreclosures statistics
• Foreclosure Rescue Scams
• Other Risky Financial Activities

4
The American Dream

• Owning a home
• Largest asset
• Largest investment
• Financed with loan/ mortgage

5
Fair Lending Laws Exist.

• Fair Housing Act
• Anti-predatory lending laws ( e.g. NJ
  Homeownership Security Act)
• Community Reinvestment Act
• Equal Credit Opportunity Act
• Home Mortgage Disclosure (HMDA) Act
• Truth and Lending Act

6
The Fair Housing Act

• Prohibits discrimination against a prospective
• tenant or homebuyer due to
• Race or Color
• National Origin
• Religion
• Familial Status (have children under 18 or are
  Pregnant)
• Gender
• Disability
• IF you feel your rights have been violated
  contact HUD or a fair housing agency (NJCA)

7
The NJ Homeownership Security Act (NJHOSA)

• What homebuyers homeowners should
• know
• This law applies to
• Home purchase loans
• Refinance loans
• Home improvement loans
• Also known as anti predatory lending law

8
What does the NJ anti-predatory lending law do?

• This law protects homeowners and
• Homebuyers from
• Being charged high points and fees
• Loan Flipping
• Being Charged unnecessary credit insurance
• Balloon Payments
• Being charged excessive late fees

9
Other important provisions of the NJ
anti-predatory lending law

• Increased protections for homeowners homebuyers
  who enter into high cost (more expensive, high
  interest) loans
• Borrowers must receive counseling from a loan
  counselor approved by HUD and NJ Department of
  Banking Insurance
• Victims have remedies rights (including
  punitive damages) under the new law
• You may have rights even if your predatory loan
  is sold to another financial institution
• For more information about this law contact NJCA
  or the NJ Department of Banking

10
Before You Buy

• Get help seek HUD-certified counseling
• Check your credit
• Determine monthly payment
• Set your price range
• Consider possible lenders Shopping for a
  Mortgage Loan
• Know your rights under NJs new anti-predatory
  lending law!

11
Buying Process

• Financing your home who to use?
• Mortgage Broker
• Mortgage Banker
• Mortgage Servicer
• Mortgage Solicitor
• Mortgage Originator
• Credit review

• Mortgage Application
• Do I need a lawyer?
• Purchase agreement
• Inspection and appraisal
• Title search
• Closing

12
How much debt is too much?

• Debt-to-Income Ratio how much you owe
• compared with how much you earn.
• Debt-to-Income Ratio Total monthly debt
• take-home pay (net income)
• The lower your debt-to-income ratio, the more you
• have left over to save or spend on other things.

13
Commonly Used Mortgage Terms

• Debt to Income Ratio
• Down Payment
• Private Mortgage Insurance (PMI)
• Interest Rate

14
Shopping for a Mortgage

• Prequalify/Preapproval
• Application Costs
• Know the Lender
• Types of Loans
• Prime
• Subprime
• Predatory

15
Prime Loan Programs

• Conventional
• Government program (VA, FHA, Fannie Mae)
• CRA (below market)
• Lower interest rate
• No point, no PMI
• Low application fee
• May include closing cost assistance

16
The Reverse Mortgage

• Opposite of a Conventional Mortgage
• Homeowner maintains full ownership
• Determining the Amount of Money
• Age
• Martial status
• Market value of the home
• Any debt owed
• Any other property owned
• Requirements
• 62 years
• Primary residence
• Relatively free of debt

17
Reverse Mortgage

• Payment Options
• Term
• Tenure
• Line of Credit
• Home Purchase
• Reverse Mortgages require counseling

18
Subprime loans

• Higher interest rate, points, fees
• Often offered by mortgage companies
• Greater credit risk
• Advertised as last option
• Higher default rates
• 20 of all Mortgages in 2006 were Subprime

19
Types of Subprime Mortgages

• The difference between fixed vs. adjustable rate
  mortgages (ARMs)
• 80 20 Mortgages
• Adjustable Rates ARMS
• 2-28, 3-37,5-25
• Hybrid (30/5/5, 15/3/3, 80/20s)
• Pick-a-payment (optional ARM)
• Negative Amortization
• Wraparound
• Interest only

20
Predatory Lending Components

• High Pressure Sales or
• Deceptive Sales Tactics
• Preys on Lack of Information or lack of Credit
  Confidence
• Abuses Lending and Credit Practices
• Lending Not Beneficial to Homeowner the loan
  should be appropriate for the borrower

21
Signs of Predatory Lending

• High fees, points or upfront costs
• Financing unnecessary insurance
• Outrageous prepayment penalties
• Hidden balloon payments
• Blank spaces
• Repeated refinancing (loan flipping)
• Many of these practices are now illegal
• under the new NJ law!!

22
Targets

• People of Color
• Seniors
• Low-income individuals
• Non-English speaking/reading
• People with poor credit
• Homeowners who are in financial crisis

23
Predatory Lending Results in

• Cant make payments
• Pay much more than necessary
• Never pay off loan
• Foreclosure
• Lose investment
• Ruined credit

24
Types of Predatory Scams

• First time Homebuyers Beware
• Property flipping
• Referral Scams
• Liar Loans
• Homeowners Beware
• Home improvement Scam
• Debt Consolidation Scams
• Refinance Loans
• Many of these can result in Equity Stripping

25
Predatory Advertising

• No money down
• When everyone says no, we say yes.
• Credit problems? No problem!
• No one refused!

26
The Housing Crisis The Dream becomes a Nightmare

• 1.8 million subprime mortgages will adjust in
  2008 and 2009
• 1.3 million homes subject to foreclosure in 2007
  thats up 79 from 2006
• Housing prices have dropped - homeowners have
  borrowed more than their homes are worth
• Unqualified borrowers have received loans
• Buyers unaware of mortgage terms
• Homeowners cant keep up with the payments

27
New Jersey Statistics

• Camden, Newark and Edison were already among the
  50 United States metropolitan areas with the
  highest foreclosure rates in 2006
• There are 179,873 estimated outstanding subprime
  mortgages in NJ
• 35,117 subprime foreclosures are expected between
  3rdQ 2007 and end of 2009
• There are 56,394 subprime ARMS in NJ
• Projected reduction in property values due to
  foreclosures is 11.1 billion dollars
• Projected loss in property tax revenue due to
  foreclosure is 99 million dollars

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Foreclosure Rescue Scams

• Phantom Help
• Bailout
• Bait and Switch

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Why Homeowners Fall for the Foreclosure Rescue
Scams

• Trust that the broker is helping
• Desperation to save home
• Affinity marketing
• Lack of economic sophistication

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Danger signsWatch out for.

• mortgage specialists, foreclosure service
• Ads and posters
• Unsolicited phone calls
• Being told to stop contact with lender
• Blank documents

31
Suggestions for Troubled Homeowners

• Open all bank correspondence
• Dont panic, contact lender
• Never sign
• Blank documents
• Away your ownership
• Under pressure
• Dont use credit card debt for mortgage
• Dont make mortgage payments to anyone but lender

32
Who can Help

• HUD-certified counseling agencies www.hud.gov
• NJHOPE
• Your mortgage lender or servicer
• The NJ Department of Banking or Insurance (973)
  648-4713
• The NJ Division of Consumer Affairs (800)
  242-5846
• Legal Services of New Jersey [phone]

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What are the options

• Contact HUD-certified counselor
• Prioritize debt and spending
• Use assets, borrow from family
• Forbearance Agreement
• Restructure Loan or a Loan Modification
• Short sale
• Deed-in-lieu of foreclosure
• Consider legal action against a predatory or
  fraudulent lender
• Talk to your lender and creditors

34
The Foreclosure Process in NJ Takes a minimum
of 9 months

• Defaultusually 3 months missed payment
• Notice of intention - 33 days
• Foreclosure complaint filed in Trenton30 to 60
  days
• Complaint served 35 days to answer
• NONContesting complaint 30 days/ Contesting -
  trial
• Notice of entry- final judgment 14 days
• Writ of execution 45-120 days
• Homeowner entitled to 2 adjournment -14 days each
• Sheriff sale 10 days to redeem
• Deed transfer 2 weeks from date of sale

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Other Risky Financial Activities

• Savings Club Investment schemes
• Illegal Lotteries or drawings
• Pawn Shops
• Rent-to-Own Stores

• Payday loans
• Auto title loans
• Notario Publicos
• Loan Sharks
• Rapid Refund Schemes

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Alternatives to Risky Financial Activities

• Budget - Set aside each week to save on your
  own
• Signed agreement with all people in a
  savings/investment club
• Dont play the lottery- the odds are slim -or buy
  1 inexpensive lottery ticket
• Dont sell anything you dont want to lose at a
  pawn shop
• Sell items at a garage sale or with classified
  ads
• Dont use rent-to-own shops - save until you can
  purchase
• By used furniture at a garage sale or thrift shop
• Borrow money from family or friends if its an
  emergency
• Be sure to find out if you qualify for Earned
  Income Tax Credit

37
Alternatives to Risky Financial Activities

• Get a small loan from credit union or community
  org.
• Ask an employer for an advance
• Contact creditors ask for more time to pay your
  bills
• Use overdraft protection for your checking
  account
• Compare use credit options such as credit cards
  or cash advance
• Find qualified lawyers through Legal Services or
  bar association
• Use free tax preparation provided by IRS local
  nonprofits
• Contact a HUD-certified counseling agency to get
  some help

38
Protect Yourself

• Shop around
• Be sure Lender or Contractor is Licensed
• NJCA loan counseling
• Read contract/keep signed dated copy
• Dont sign documents with blank lines
• Reputable well established
• Get your own home inspection and attorney

39
Do your part

• Learn
• Avoid
• Share info with others
• Report

40
Personal Survey How do I Handle Money?

• Please take a few minutes to think about
• how you handle money