Predatory lending can affect anyone

Watch out for loan offers that sound too good to be true

The average American has a problem with debt. The typical home has 19 credit cards, nearly $10,000 in credit card debt and a mortgage and a car loan. The typical consumer is saddled with a lot of obligations. For most people, it’s just par for the course, and if you work a steady job and pay your bills, these debts are just the cost of living in the United States. For others, however, these burdens can get out of hand quickly, forcing many people to make decisions that could cost them dearly later.

The pressure that people feel when their debt problems get out of control is what feeds the predatory lending industry. There are criminals out there who exist for no reason except to take advantage of those people who have financial problems and feel that they have nowhere else to turn. They aren’t necessarily interested in your money; they might actually want your house! And how do they get it? By encouraging you to borrow money with your house as collateral. They offer terms that you feel that you cannot refuse but also cannot pay back. And when you fail to pay on time, they seize your house and sell it, keeping the profits of the equity that you worked to build.

Here are some typical types of predatory lending scams:

• Home improvement scams - The “repair” varies, but the scam is always the same. A contractor knocks on your door and offers you a deal you can’t refuse on some sort of home improvement. It might be a new driveway, or a new roof, or the grandaddy of all of these scams, new aluminum siding. The price is always fair, and the contractor says that he can get to work on it right away. He can even arrange financing for you. And that’s the gimmick - the financing is in the form of a home equity loan. Borrowers don’t always realize it, and the financing usually turns out to be unreasonable, with high interest rates and fees. Many a homeowner has lost their house because they agreed to buy new siding from a stranger.
• Balloon Payments - Some lenders will offer loans that seem to have unusually low monthly payments. That’s because the fine print of the mortgage mentions that the bulk of the loan principal is due at some specified date in the future, in the form of a single lump sum. If you aren’t prepared to hand over a check for $75,000 in a single payment in five years’ time, you might want to avoid a loan with a balloon payment.
• Junk fees - Many loans by predatory lenders are stuffed with all manner of junk fees added to the closing costs. These could be any one of a number of different things, but they often add up to thousands of extra dollars that the borrowers hadn’t counted on spending.

Only you can avoid becoming a victim. If you aren’t shopping for a loan, don’t buy one from strangers who call or knock on your door. And take the time to have an attorney look over any loan documents. Remember, you are responsible for anything you sign. Don’t do anything unwise.