Borrower Beware: What You Don't Know About Predatory Lending Can Hurt You

(NAPSI)-"Need money? Bad credit? No credit? No problem!"

Many times, these phrases are music to the ears of loan-seekers, especially those with less-than-perfect credit ratings. However, when it comes time to pay back these loans and tally up the interest charges, borrowers often find themselves singing a sorrowful tune.

Most lenders value their customers and want to give them the best possible loan options. However, according to a new guide, consumers need to beware. Promises of easy money can come back to haunt you; inability to pay back the loan could ruin your credit and result in a loss of cash savings, car, home furnishings- even your home.

In an effort to educate the public about predatory lending practices and obtaining a mortgage, the Fannie Mae Foundation has developed a free consumer guide, Borrowing Basics: What You Don't Know Can Hurt You. The guide serves to educate people on what predatory lending is, how to identify it and its negative effects. The guide, currently available in English, will soon be published in Spanish, Chinese, Korean, Vietnamese, Russian, Polish, Portuguese and Haitian-Creole.

Borrowing Basics helps consumers understand the characteristics of predatory lenders, and helps them avoid becoming victims. The guide covers such topics as who predatory lenders are, and the similar traits they have, including:

• offering a loan based solely on the equity in a home, not on the borrower's ability to repay it;

• charging unusually high interest rates for loans;

• adding excessive points to a loan without lowering the interest rate;

• including excessive fees; and

• tacking on unnecessary costs such as prepaid single-premium credit life insurance.

"Predatory lending is a sad chapter in the history of housing discrimination," said Stacey H. Davis, president and CEO of the Fannie Mae Foundation. "The Borrowing Basics guide will educate and empower potential borrowers, helping them avoid becoming victimized by unscrupulous lenders by providing information on how to shop for a loan and become aware of all their options."

Most often, the victims of predatory lenders are low- and moderate-income persons, minorities and the elderly. In order to avoid becoming victims, the guide advises consumers to:

• shop around and contact at least three lending institutions to compare interest rates and loan options;

• borrow only the amount needed and affordably repayable;

• understand exactly how much the entire loan will cost;

• make sure that the loan fees are reasonable;

• read the entire loan document and check for accuracy; and

• resist pressure to sign for an unaffordable loan.

The Fannie Mae Foundation creates affordable homeownership and housing opportunities through innovative partnerships and initiatives that build healthy, vibrant communities across the United States.

Tell a friend about this site