"Don't Borrow Trouble" Campaign

"Predatory lending practices don't just undermine individual families. They undermine entire neighborhoods. Don't Borrow Trouble will help people make financial decisions that result in long-term homeownership and allow them to build equity in their homes." Leland C. BrendselChairman and CEO Freddie Mac

Most mortgage lenders and brokers have their customers' best interests in mind but there are some who may try to take advantage of consumers by using "abusive" or "predatory" lending practices. Understand the benefits of informed consumers - the more homeowners know, the better they can protect themselves and ensure they get the best mortgage for which they are qualified. The Don't Borrow Trouble campaign can arm homeowners with the information they need to protect their home.

What is Predatory Lending?
How Can I Avoid These Practices?
Learning More about Predatory Lending
Avoiding Borrowing Pitfalls
Additional Resources & Information

What is Predatory Lending?

Although predatory lending is not defined by federal law, and states define abusive lending differently, they usually involve practices that strip equity away from a homeowner. Predatory or abusive lending practices can include:

1. Repeatedly refinancing a loan within a short period of time and charging high points and fees with each refinance.
2. "Packing" a loan with single premium credit insurance products, such as credit life insurance, and not adequately disclosing the inclusion, cost or any additional fees associated with the insurance.
3. Charging excessive rates and fees to a borrower who qualifies for lower rates and/or fees offered by the lender.

A loan product or lending practice may not seem predatory until compared with a similar loan product offered by other lenders. The situation may not seem abusive until when everyone gets to the closing table. If any fees or charges differ from what was previously disclosed, delay the closing until all terms of the loan are clearly understood.

How Can I Avoid These Practices?

1. Do the homework! Shop around and compare different lenders' products. Ask for written estimates that include all points and fees.
2. Avoid solicitations for loans that sound too good to be true. If it sounds too good to be true, it probably is. If a solicitation is really interesting, get it in writing!
3. Use a home's equity carefully. Homeowners may be able to get some cash by repeatedly refinancing their homes but they will lose equity in their homes. A loss of equity also occurs each time homeowners finance new points and fees.
4. Don't borrow more than needed. When refinancing, borrow only what is needed so the home's equity is protected.

Learning More about Predatory Lending

The best defense against predatory lending is education. Understanding homeowner rights and the homebuying process is an important first step in protecting families and their home.

We have included some information on common borrowing mistakes as well as links to more information on the homebuying process. More information can be found at:

• the local library
• nonprofit housing & homeownership organizations
• nonprofit credit counseling agencies

The Mortgage Bankers Association has compiled a Ten Signs of Predatory Lending. Click to read it.

Avoiding Borrowing Pitfalls

1. Shop around. Borrowers should talk to several lenders to find the best loan for which they qualify. Understand the best loan terms available in the marketplace and compare the APR (annual percentage rate) of loans from different lenders. The APR takes into account both the interest rate and the points and fees of the loan.
2. Understand the loan terms. Borrowers should compare loan terms from different lenders. A nonprofit housing counselor or a lawyer can review the information with a borrower.
3. Find out about prepayment penalties. Borrowers should know if the loan offered to them has a prepayment penalty. Prepayment penalty should be a choice, not a requirement.
4. Say NO to "easy money." Borrowers should beware if someone claims "their credit problems won't affect the interest rate."
5. Make sure documents are correct. Be cautious of someone that offers to falsify a borrower's income information to qualify for a loan. Borrowers should never falsify information or sign documents that they know to be false.
6. Make sure documents are complete. A borrower should not sign documents that have incorrect dates or blank fields. Be wary of promises that a lender will "fix it later" or "fill it in later."
7. Ask about additional fees. Borrowers should question any items they didn't ask for. Borrowers should also beware if they are told that single premium credit insurance is required get a loan, or that purchasing it will help loan approval. Review every fee and compare different lenders' fees to ensure the most competitive loan terms.
8. Work with credit counselors. A borrower should get all the facts before deciding to combine credit card or other debts into a home loan. Talk to a consumer credit counseling agency or nonprofit housing counselor before signing the loan documents.
9. Protect home equity. If borrowers are taking equity out of their property, they should take out the minimum amount needed. The equity in a home is a source of wealth, which builds up slowly over time.
10. If not sure, don't sign. Talk to a consumer credit counseling agency or nonprofit housing counselor.

The Mortgage Bankers Association has compiled a Borrower's Bill of Rights. Click to read it.

Additional Resources & Information

Your Route to Homeownership: Freddie Mac brings the world's finest housing system to one in six homeowners in America. We're proud of that number but believe we can do more. So we've created the online guide, Your Route to Homeownership.
www.freddiemac.com/homebuyers CreditSmart: The single most effective way to prepare consumers for homeownership is to educate them on the importance of using credit wisely. Establishing and maintaining good credit is essential to building a sound financial future. CreditSmart can help. It is being taught on college campuses, in church basements and is available as a self-tutorial online.
www.freddiemac.com/creditsmart Prepayment Penalty Mortgages: What are the pros and cons of a prepayment penalty mortgage? Is a PPM ever a requirement? Everything a borrower needs to know about PPM but was afraid to ask can be found here.

How to Avoid Foreclosure is now available on the US Department of Housing & Urban Development Website.

Reporting Mortgage Fraud : If you think someone has been a victim of mortgage fraud, contact Ken Davis at Neighborhood Housing Services of NY City at ken_davis@nhsnyc.org or (718) 230-7610 or if Freddie Mac owns your mortgage, call (800) 4 FRAUD 8 or (800) 437-2838 or go to the Mortgage Bankers Association of America special website at www.stopmortgagefraud.com.

Source: www.dontborrowtrouble.com and www.freddiemac.com and www.stopmortgagefraud.com and www.nhsnyc.org and www.hud.gov