Developed by NJCA1 Beware… Predatory Lending Avoiding Financial Frauds and Foreclosure.

Developed by NJCA 1

Beware… Predatory Lending

Avoiding Financial Frauds and Foreclosure

Developed by NJCA 2

Acknowledgment

The work that provided the basis for this

presentation was supported by funding

under a grant with the U.S. Department

of Housing & Urban Development.

Developed by NJCA 3

OverviewUnderstanding: The state and federal laws that support

fair housing and protect consumers The home buying process Types of Mortgages Predatory mortgage lenders & sellers Risks of Subprime Loans Foreclosures statistics Foreclosure Rescue Scams Other Risky Financial Activities

Developed by NJCA 4

The American Dream

Owning a home Largest asset Largest investment Financed with loan/ mortgage

Developed by NJCA 5

Fair Lending Laws Exist….

Fair Housing Act Anti-predatory lending laws ( e.g. NJ

Homeownership Security Act) Community Reinvestment Act Equal Credit Opportunity Act Home Mortgage Disclosure (HMDA)

Act Truth and Lending Act

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The Fair Housing Act

Prohibits discrimination against a prospectivetenant or homebuyer due to: Race or Color National Origin Religion Familial Status (have children under 18 or are Pregnant) Gender DisabilityIF you feel your rights have been violated contact HUD or

a fair housing agency (NJCA)

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The NJ Homeownership Security Act (NJHOSA)

What homebuyers & homeowners should know:

This law applies to: Home purchase loans Refinance loans Home improvement loansAlso known as anti predatory lending

law

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What does the NJ anti-predatory lending law do?

This law protects homeowners and Homebuyers from : Being charged high points and fees Loan Flipping Being Charged unnecessary credit

insurance Balloon Payments Being charged excessive late fees

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Other important provisions of the NJ anti-predatory lending law

Increased protections for homeowners & homebuyers who enter into high cost (more expensive, high interest) loans:

Borrowers must receive counseling from a loan counselor approved by HUD and NJ Department of Banking & Insurance

Victims have remedies & rights (including punitive damages) under the new law

You may have rights even if your predatory loan is sold to another financial institution

For more information about this law contact NJCA or the NJ Department of Banking

Developed by NJCA 10

Before You Buy Get help – seek HUD-certified

counseling Check your credit Determine monthly payment Set your price range Consider possible lenders – Shopping

for a Mortgage Loan Know your rights under NJ’s new anti-

predatory lending law!


Buying Process

Financing your home: who to use? Mortgage Broker Mortgage Banker Mortgage Servicer Mortgage Solicitor Mortgage Originator

Credit review

Mortgage Application Do I need a lawyer?

Purchase agreement Inspection and

appraisal Title search Closing


Commonly Used Mortgage Terms

Debt to Income Ratio Down Payment Private Mortgage Insurance (PMI) Interest Rate


Shopping for a Mortgage Prequalify/Preapproval Application Costs Know the Lender Types of Loans

Prime Subprime Predatory


Prime Loan Programs

Conventional Government program (VA, FHA, Fannie

Mae) CRA (below market)

Lower interest rate No point, no PMI Low application fee May include closing cost assistance


The Reverse Mortgage Opposite of a Conventional

Mortgage Homeowner maintains full

ownership Determining the Amount of Money

Age Martial status Market value of the home Any debt owed Any other property owned

Requirements 62 + years Primary residence Relatively free of debt


Reverse Mortgage Payment Options

Term Tenure Line of Credit Home Purchase

Reverse Mortgages require counseling


Subprime loans Higher interest rate, points, fees Often offered by mortgage companies Greater credit risk Advertised as last option Higher default rates20% of all Mortgages in 2006 were

Subprime


Types of Subprime Mortgages

The difference between fixed vs. adjustable rate mortgages (ARMs)

80 – 20 Mortgages Adjustable Rates – ARMS

2-28, 3-37,5-25 Hybrid (30/5/5, 15/3/3, 80/20s)

Pick-a-payment (optional ARM) Negative Amortization Wraparound Interest only


Predatory Lending Components High Pressure Sales or Deceptive Sales Tactics Preys on Lack of Information or lack

of Credit Confidence Abuses Lending and Credit Practices Lending Not Beneficial to

Homeowner – the loan should be appropriate for the borrower


Signs of Predatory Lending High fees, points or upfront costs Financing unnecessary insurance Outrageous prepayment penalties Hidden balloon payments Blank spaces Repeated refinancing (loan flipping)Many of these practices are now

illegal under the new NJ law!!


Targets

People of Color Seniors Low-income individuals Non-English speaking/reading People with poor credit Homeowners who are in financial

crisis


Predatory Lending Results in Can’t make payments Pay much more than necessary Never pay off loan Foreclosure Lose investment Ruined credit


Types of Predatory Scams First time Homebuyers Beware:

Property flipping Referral Scams Liar Loans

Homeowners Beware: Home improvement Scam Debt Consolidation Scams Refinance Loans

Many of these can result in Equity Stripping


Predatory Advertising

No money down When everyone says no, we say

yes. Credit problems? No problem! No one refused!


The Housing Crisis: The Dream becomes a Nightmare

1.8 million subprime mortgages will adjust in 2008 and 2009

1.3 million homes subject to foreclosure in 2007 – that’s up 79% from 2006

Housing prices have dropped - homeowners have borrowed more than their homes are worth

Unqualified borrowers have received loans Buyers unaware of mortgage terms Homeowners can’t keep up with the payments


New Jersey Statistics Camden, Newark and Edison were already among

the 50 United States metropolitan areas with the highest foreclosure rates in 2006

There are 179,873 estimated outstanding subprime mortgages in NJ

35,117 subprime foreclosures are expected between 3rdQ 2007 and end of 2009

There are 56,394 subprime ARMS in NJ Projected reduction in property values due to

foreclosures is 11.1 billion dollars Projected loss in property tax revenue due to

foreclosure is 99 million dollars


Foreclosure Rescue Scams Phantom Help Bailout Bait and Switch


Why Homeowners Fall for the Foreclosure Rescue Scams

Trust that the broker is helping Desperation to save home Affinity marketing Lack of economic sophistication


Danger signsWatch out for….

“mortgage specialists”, “foreclosure service”

Ads and posters Unsolicited phone calls Being told to stop contact with

lender Blank documents


Suggestions for Troubled Homeowners

Open all bank correspondence Don’t panic, contact lender Never sign

Blank documents Away your ownership Under pressure

Don’t use credit card debt for mortgage Don’t make mortgage payments to anyone

but lender


Who can Help HUD-certified counseling agencies

www.hud.gov NJHOPE Your mortgage lender or servicer The NJ Department of Banking or Insurance

(973) 648-4713 The NJ Division of Consumer Affairs (800) 242-

5846 Legal Services of New Jersey (888) 576-5529


What are the options Contact HUD-certified counselor Prioritize debt and spending Use assets, borrow from family Forbearance Agreement Restructure Loan or a Loan Modification Short sale Deed-in-lieu of foreclosure Consider legal action against a predatory or

fraudulent lenderTalk to your lender and creditors


The Foreclosure Process in NJ Takes a minimum of 9 months Default–usually 3 months missed payment Notice of intention - 33 days Foreclosure complaint filed in Trenton–30 to 60 days Complaint served – 35 days to answer NONContesting complaint– 30 days/ Contesting -

trial Notice of entry- final judgment 14 days Writ of execution 45-120 days Homeowner entitled to 2 adjournment -14 days

each Sheriff sale – 10 days to redeem Deed transfer – 2 weeks from date of sale


Other Risky Financial Activities

Savings Club & Investment schemes

Illegal Lotteries or drawings

Pawn Shops Rent-to-Own

Stores

Payday loans Auto title loans Notario Publicos Loan Sharks Rapid Refund

Schemes


Alternatives to Risky Financial Activities…

Budget - Set aside $ each week to save on your own Signed agreement with all people in a

savings/investment club Don’t play the lottery- the odds are slim -or buy 1

inexpensive lottery ticket Don’t sell anything you don’t want to lose at a pawn

shop Sell items at a garage sale or with classified ads Don’t use rent-to-own shops - save until you can

purchase By used furniture at a garage sale or thrift shop Borrow money from family or friends if it’s an emergency Be sure to find out if you qualify for Earned Income Tax

Credit


Alternatives to Risky Financial Activities…

Get a small loan from credit union or community org. Ask an employer for an advance Contact creditors & ask for more time to pay your

bills Use overdraft protection for your checking account Compare & use credit options such as credit cards or

cash advance Find qualified lawyers through Legal Services or bar

association Use free tax preparation provided by IRS & local

nonprofits Contact a HUD-certified counseling agency to get

some help


Protect Yourself Shop around Be sure Lender or Contractor is Licensed NJCA loan counseling Read contract/keep signed & dated copy Don’t sign documents with blank lines Reputable well established Get your own home inspection and

attorney


Do your part

Learn Avoid Share info with others Report


Personal Survey: How do I Handle Money?

Please take a few minutes to think about

how you handle money…

Developed by NJCA1 Beware… Predatory Lending Avoiding Financial Frauds and Foreclosure.

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Transcript of Developed by NJCA1 Beware… Predatory Lending Avoiding Financial Frauds and Foreclosure.