The term predatory applies to a range of underhanded and potentially fraudulent mortgage lending practices which ignore the borrower's ability to repay the debt. According to the debt assistance organization Debt, predatory lenders typically target the elderly, the less educated and the financially desperate, in other words, people who may not qualify for conventional loans. Not all predatory mortgages are illegal. Failing to keep up with legal mortgage payments, even if they seem unfair, puts a borrower at risk of foreclosure.
Confirm that your mortgage is, in fact, predatory. This is not a simple task, as there is no single definition of the term. Here are a few red flags to look out for: your interest rate is higher than promised; your loan penalizes you for paying off the balance early; you secured the loan despite a poor credit rating and/or were contacted directly by the broker who encouraged you to make a hurried decision regarding the loan; property taxes and insurance are not included in your monthly payments; or you were encouraged to borrow more by way of a refinancing product with a higher interest rate.
Invoke your three-day right of recision if your loan is very recent. Sometimes known as a "cooling-off period," the federal Truth in Lending Act (TILA) gives every borrower who pledges his property as collateral for a loan the chance to change his mind. Notice of recision must be given within three business days of taking out the loan.
Check your papers. Your loan is invalid if you did not receive a TILA disclosure form confirming certain statutory information, including: the loan's Annual Percentage Rate (APR); your total payments and payment schedule; a notice explaining your right to a cooling-off period. If your loan is invalid, you are free to cancel it and walk away from the mortgage at any time within three years of taking out the loan.
Consult an attorney and file a lawsuit, if you think your lender has violated TILA. Your remedy is damages -- up to twice the charges your lender levied against you. If your state is one of the 25 states that has its own anti-predatory mortgage laws, further remedies might be available.
Refinance to favorable terms as soon as you can. Thirty-five states limit the prepayment penalty that a borrower can be required to pay, regardless of the terms of the loan documents. Learn about your eligibility for the Departments of the Treasury and Housing and Urban Development "Making Homes Affordable" program. If you qualify for the program, you could see a permanent reduction in your monthly payments.
Jayne Thompson earned an LLB in Law and Business Administration from the University of Birmingham and an LLM in International Law from the University of East London. She practiced in various “big law” firms before launching a career as a commercial writer. Her work has appeared on numerous financial blogs including Wealth Soup and Synchrony. Find her at www.whiterosecopywriting.com.