By Leonard Elias, Esq.
Miami-Dade Consumer Advocate

Escaping the Clutches of a Predatory Loan
Foreclosures are escalating at an alarming rate.  In 2007, Florida ranked second in the number of home foreclosures, affecting one in every 95 Florida households.  Miami ranked eighth among the metro areas in Florida.

Many foreclosures stem from what's called a predatory loan.  This is a term that was only a blip on the radar screen in years past.  Now "predatory" is the word of the year, and it's hotly talked about in presidential campaigns. 

Just what is a predatory loan?  This happens when a lender misleads, tricks and sometimes pressures consumers into taking out home loans at excessive costs without regard to their ability to repay.

The Florida Fair Lending Act, Chapter 494, Florida Statutes, prohibits predatory tactics on high-cost home loans, including:

• Charging prepayment penalties for longer than three years
• Increased interest on loans going into default
• Balloon payments on loans that mature in less than 10 years
• Extending credit regardless of a borrower's ability to pay
• Making direct payments to home improvement contractors
• Calling a loan due even though the borrower has complied with the terms of the loan
• Refinancing a loan during the first 18 months, unless there is a benefit to the borrower
• Offering to originate a loan at the borrower's home without a prearranged appointment
• Charging late fees that exceed five percent of the payment

Disclosure Rules
The law also requires lenders to disclose certain facts about the loan at least three days prior to closing the deal, including:

• A mortgage will be placed on the borrower's home, and they could lose the home in the event of foreclosure
• Interest rates and terms can vary, depending on the lender or broker
• Borrowers should consider consulting a HUD approved credit counseling agency or a financial advisor regarding financing of their home
• Debt consolidation can be a useful tool if the borrower does not take on additional short-term debts
• Loan applicants do not have to accept the loan, even though they have filled out an application

Conditions of Subprime Loans
A court recently ruled that a subprime loan can be stopped if it meets four conditions: (1) the loan must have a low introductory interest rate; (2) after the initial period, the rate must increase at least 3 percentage points; (3) monthly payments must be equal to more than half the borrower's income; and (4) the mortgage must not have required a down payment.

Tips to Avoid Trouble
If you are having trouble keeping up with your mortgage payments, the Consumer Services Department provides these tips to avoid foreclosure problems: 

• Don't ignore the problem.
• Contact your lender as soon as you realize you have a problem. Be honest:  lenders do not want your home. They have options to help borrowers get through difficult times. Open and respond to all mail received from your lender. 
• Understand your options. Information can be found on the Internet at www.hud.gov/foreclosure/index.cfm and www.fha.gov/foreclosure/index.cfm.
• Get outside advice.  Find a HUD-approved housing counselor in your area by calling 1-800-569-4287 or on the Internet at www.hud.gov/offices/hsg/sfh/hcc/hcs.cfm, or contact the Homeownership Preservation Foundation Hotline at 1-888-995-HOPE for a personal consultation. 
• Avoid foreclosure prevention companies. Your lender or a HUD-approved housing counselor will help you for free if you contact them. 
• Beware of foreclosure scams. Predatory lenders often target people in financial distress.  Be suspicious of "bargain loans," "foreclosure solutions," promises to "cure" your default, or "repair your credit."  Don't sign any documents you do not understand - if you sign a deed, this means that you are selling your home. 
• Additional tips can be found on Freddie Mac's "Don't Borrow Trouble" website www.dontborrowtrouble.com/en/anti_predatory.html.

For more information or if you believe you are the victim of predatory lending, visit the Miami-Dade County Housing Finance Authority website at www.miamidade.gov/hfa or call their Anti-Predatory Lending Hotline at 786-331-5348.

Finally, if you believe you may be a victim of mortgage fraud, visit Miami-Dade County Mayor Carlos Alvarez's Mortgage Fraud Task Force website at www.miamidade.gov/mayor/mortgage_fraud.asp or call the Miami-Dade Police Department's Economic Crimes Bureau at 305-471-1090.