Symptoms and Treatment
What is a UAV Drone?
Avoiding Home Equity Scams
Home Equity Loans: Borrowers Beware!
Do you own your home? If so, it's likely to be your greatest single asset.
Unfortunately, if you agree to a loan that's based on the equity you have
in your home, you may be putting your most valuable asset at risk.
Homeowners-particularly elderly, minority and those with low incomes
or poor credit-should be careful when borrowing money based on their home
equity. Why? Certain abusive or exploitative lenders target these borrowers,
who unwittingly may be putting their home on the line.
Abusive lending practices range from equity stripping and loan flipping
to hiding loan terms and packing a loan with extra charges. The Federal
Trade Commission urges you to be aware of these loan practices to avoid
losing your home.
You need money. You don't have much income coming in each month. You have
built up equity in your home. A lender tells you that you could get a
loan, even though you know your income is just not enough to keep up with
the monthly payments. The lender encourages you to "pad" your
income on your application form to help get the loan approved.
This lender may be out to steal the equity you have built up in your
home. The lender doesn't care if you can't keep up with the monthly payments.
As soon as you don't, the lender will foreclose-taking your home and stripping
you of the equity you have spent years building. If you take out a loan
but don't have enough income to make the monthly payments, you are being
set up. You probably will lose your home.
||Hidden Loan Terms: The Balloon Payment
You've fallen behind in your mortgage payments and may face foreclosure.
Another lender offers to save you from foreclosure by refinancing your
mortgage and lowering your monthly payments. Look carefully at the loan
terms. The payments may be lower because the lender is offering a loan
on which you repay only the interest each month. At the end of the loan
term, the principal-that is, the entire amount that you borrowed-is due
in one lump sum called a balloon payment. If you can't make the balloon
payment or refinance, you face foreclosure and the loss of your home.
Suppose you've had your mortgage for years. The interest rate is low and
the monthly payments fit nicely into your budget, but you could use some
extra money. A lender calls to talk about refinancing, and using the availability
of extra cash as bait, claims it's time the equity in your home started
"working" for you. You agree to refinance your loan. After you've
made a few payments on the loan, the lender calls to offer you a bigger
loan for, say, a vacation. If you accept the offer, the lender refinances
your original loan and then lends you additional money. In this practice-often
called "flipping"-the lender charges you high points and fees
each time you refinance, and may increase your interest rate as well.
If the loan has a prepayment penalty, you will have to pay that penalty
each time you take out a new loan.
You now have some extra money and a lot more debt, stretched out over
a longer time. The extra cash you receive may be less than the additional
costs and fees you were charged for the refinancing. And what's worse,
you are now paying interest on those extra fees charged in each refinancing.
Long story short? With each refinancing, you've increased your debt and
probably are paying a very high price for some extra cash. After a while,
if you get in over your head and can't pay, you could lose your home.
The "Home Improvement" Loan
A contractor calls or knocks on your door and offers to install a new
roof or remodel your kitchen at a price that sounds reasonable. You tell
him you're interested, but can't afford it. He tells you it's no problem-he
can arrange financing through a lender he knows. You agree to the project,
and the contractor begins work. At some point after the contractor begins,
you are asked to sign a lot of papers. The papers may be blank or the
lender may rush you to sign before you have time to read what you've been
given. The contractor threatens to leave the work on your house unfinished
if you don't sign. You sign the papers. Only later, you realize that the
papers you signed are a home equity loan. The interest rate, points and
fees seem very high. To make matters worse, the work on your home isn't
done right or hasn't been completed, and the contractor, who may have
been paid by the lender, has little interest in completing the work to
Credit Insurance Packing
You've just agreed to a mortgage on terms you think you can afford. At
closing, the lender gives you papers to sign that include charges for
credit insurance or other "benefits" that you did not ask for
and do not want. The lender hopes you don't notice this, and that you
just sign the loan papers where you are asked to sign. The lender doesn't
explain exactly how much extra money this will cost you each month on
your loan. If you do notice, you're afraid that if you ask questions or
object, you might not get the loan. The lender may tell you that this
insurance comes with the loan, making you think that it comes at no additional
cost. Or, if you object, the lender may even tell you that if you want
the loan without the insurance, the loan papers will have to be rewritten,
that it could take several days, and that the manager may reconsider the
loan altogether. If you agree to buy the insurance, you really are paying
extra for the loan by buying a product you may not want or need.
Mortgage Servicing Abuses
After you get a mortgage, you receive a letter from your lender saying
that your monthly payments will be higher than you expected. The lender
says that your payments include escrow for taxes and insurance even though
you arranged to pay those items yourself with the lender's okay. Later,
a message from the lender says you are being charged late fees. But you
know your payments were on time. Or, you may receive a message saying
that you failed to maintain required property insurance and the lender
is buying more costly insurance at your expense. Other charges that you
don't understand-like legal fees-are added to the amount you owe, increasing
your monthly payments or the amount you owe at the end of the loan term.
The lender doesn't provide you with an accurate or complete account of
these charges. You ask for a payoff statement to refinance with another
lender and receive a statement that's inaccurate or incomplete. The lender's
actions make it almost impossible to determine how much you've paid or
how much you owe. You may pay more than you owe.
Signing Over Your Deed
If you are having trouble paying your mortgage and the lender has threatened
to foreclose and take your home, you may feel desperate. Another "lender"
may contact you with an offer to help you find new financing. Before he
can help you, he asks you to deed your property to him, claiming that
it's a temporary measure to prevent foreclosure. The promised refinancing
that would let you save your home never comes through.
Once the lender has the deed to your property, he starts to treat it
as his own. He may borrow against it (for his benefit, not yours) or even
sell it to someone else. Because you don't own the home any more, you
won't get any money when the property is sold. The lender will treat you
as a tenant and your mortgage payments as rent. If your "rent"
payments are late, you can be evicted from your home.
You can protect yourself against losing your home to inappropriate lending
practices. Here's how:
- Agree to a home equity loan if you don't have enough income to make
the monthly payments.
- Sign any document you haven't read or any document that has blank
spaces to be filled in after you sign.
- Let anyone pressure you into signing any document.
Agree to a loan that includes credit insurance or extra products you
- Let the promise of extra cash or lower monthly payments get in the
way of your good judgment about whether the cost you will pay for the
loan is really worth it.
- Deed your property to anyone. First consult an attorney, a knowledgeable
family member, or someone else you trust.
- Ask specifically if credit insurance is required as a condition of
the loan. If it isn't, and a charge is included in your loan and you
don't want the insurance, ask that the charge be removed from the loan
documents. If you want the added security of credit insurance, shop
around for the best rates.
- Keep careful records of what you've paid, including billing statements
and canceled checks. Challenge any charge you think is inaccurate.
- Check contractors' references when it is time to have work done in
your home. Get more than one estimate.
- Read all items carefully. If you need an explanation of any terms
or conditions, talk to someone you can trust, such as a knowledgeable
family member or an attorney. Consider all the costs of financing before
you agree to a loan.
Three day cancellation rule - home
Home equity safety measures
For More Information:
The FTC works for the consumer to prevent fraudulent, deceptive and unfair
business practices in the marketplace and to provide information to help
consumers spot, stop and avoid them. To file a complaint or to get free
information on consumer issues, visit www.ftc.gov or call toll-free, 1-877-FTC-HELP
(1-877-382-4357); TTY: 1-866-653-4261. The FTC enters Internet, telemarketing,
identity theft and other fraud-related complaints into Consumer Sentinel,
a secure, online database available to hundreds of civil and criminal
law enforcement agencies in the U.S. and abroad.
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