Beware… Predatory Lending Avoiding Financial Frauds and Foreclosure Developed by NJCA
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Beware… Predatory Lending Avoiding Financial Frauds and Foreclosure Developed by NJCA 1 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 2 Overview Understanding: 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 3 The American Dream Owning a home Largest asset Largest investment Financed with loan/ mortgage Developed by NJCA 4 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 Developed by NJCA 5 The Fair Housing Act Prohibits discrimination against a prospective tenant or homebuyer due to: Race or Color National Origin Religion Familial Status (have children under 18 or are Pregnant) Gender Disability IF you feel your rights have been violated contact HUD or a fair housing agency (NJCA) Developed by NJCA 6 The NJ Homeownership Security Act (NJHOSA) What homebuyers & homeowners should know: This law applies to: Home purchase loans Refinance loans Home improvement loans Also known as anti predatory lending law Developed by NJCA 7 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 Developed by NJCA 8 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 9 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 antipredatory lending law! Developed by NJCA 10 Buying Process Financing your home: who to use? Mortgage Mortgage Mortgage Mortgage Mortgage Broker Banker Servicer Solicitor Originator Mortgage Application Do I need a lawyer? Purchase agreement Inspection and appraisal Title search Closing Credit review Developed by NJCA 11 Commonly Used Mortgage Terms Debt to Income Ratio Down Payment Private Mortgage Insurance (PMI) Interest Rate Developed by NJCA 13 Shopping for a Mortgage Prequalify/Preapproval Application Costs Know the Lender Types of Loans Prime Subprime Predatory Developed by NJCA 14 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 Developed by NJCA 15 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 Developed by NJCA 16 Reverse Mortgage Payment Options Term Tenure Line of Credit Home Purchase Reverse Mortgages require counseling Developed by NJCA 17 Subprime loans Higher interest rate, points, fees Often offered by mortgage companies Greater credit risk Advertised as last option Higher default rates 20% of all Mortgages in 2006 were Subprime Developed by NJCA 18 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 Developed by NJCA 19 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 Developed by NJCA 20 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!! Developed by NJCA 21 Targets People of Color Seniors Low-income individuals Non-English speaking/reading People with poor credit Homeowners who are in financial crisis Developed by NJCA 22 Predatory Lending Results in Can’t make payments Pay much more than necessary Never pay off loan Foreclosure Lose investment Ruined credit Developed by NJCA 23 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 Developed by NJCA 24 Predatory Advertising No money down When everyone says no, we say yes. Credit problems? No problem! No one refused! Developed by NJCA 25 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 Developed by NJCA 26 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 Developed by NJCA 27 Foreclosure Rescue Scams Phantom Help Bailout Bait and Switch Developed by NJCA 28 Why Homeowners Fall for the Foreclosure Rescue Scams Trust that the broker is helping Desperation to save home Affinity marketing Lack of economic sophistication Developed by NJCA 29 Danger signs Watch out for…. “mortgage specialists”, “foreclosure service” Ads and posters Unsolicited phone calls Being told to stop contact with lender Blank documents Developed by NJCA 30 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 Developed by NJCA 31 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) 2425846 Legal Services of New Jersey (888) 576-5529 Developed by NJCA 32 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 lender Talk to your lender and creditors Developed by NJCA 33 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 Developed by NJCA 34 Other Risky Financial Activities Savings Club & Investment schemes Illegal Lotteries or drawings Pawn Shops Rent-to-Own Stores Developed by NJCA Payday loans Auto title loans Notario Publicos Loan Sharks Rapid Refund Schemes 35 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 Developed by NJCA 36 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 Developed by NJCA 37 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 Developed by NJCA 38 Do your part Learn Avoid Share info with others Report Developed by NJCA 39 Personal Survey: How do I Handle Money? Please take a few minutes to think about how you handle money… Developed by NJCA 40