Academic journal article Federal Reserve Bulletin , Vol. 89, No. 11
The federal Interagency Task Force on Fair Lending has published a new brochure that alerts consumers to potential borrowing pitfalls, including high-cost home loans, and provides tips for getting the best financing deal possible. The brochure, Putting Your Home on the Loan Line Is Risky Business, warns that regardless of whether a home equity loan is for a home repair, bill consolidation, or some other purpose, it is important to shop around.
Borrowing from an unscrupulous lender, especially one that offers a high-cost loan using the home as security, could result in the loss of the borrower's home and money. The brochure cautions that certain lenders--often called "predatory lenders"--target homeowners with low incomes of credit problems, including the elderly, by deceiving them about loan terms or giving them loans they cannot afford to repay. Before signing the credit contract, consumers are encouraged to do the following:
* Think about their financing options
* Do their homework
* Think twice before they sign a loan contract
* Know that they have rights under the law
The brochure notes that many consumers may have other options for meeting their financial needs besides taking out a home equity loan. Housing counseling and social service programs are available to assist people with financial problems.
If consumers decide that a loan is right for them, the brochure suggests talking with several lenders; comparison shopping for interest rates, payments, term of the loan, points and fees, and other costs of the loan; and having a knowledgeable friend, attorney, or housing counselor review the loan documents. A shopping checklist is included with the brochure.
The publication also reminds consumers that if they are refinancing or using their home as security for a home equity loan (or for a second mortgage loan or a line of credit), federal law gives them three business days after signing the loan papers to cancel the deal. The cancellation must be submitted in writing, after which the lender is required to return any money the consumer has paid to date.
If the three-day period has already passed and consumers believe they have been misled, the brochure suggests that they contact a state or local bar association, a local consumer protection agency, or a local fair housing of housing counseling agency.
The members of the Interagency Task Force are the Department of Housing and Urban Development, the Department of Justice, the Federal Deposit Insurance Corporation, the Federal Housing Finance Board, the Federal Reserve Board, the Federal Trade Commission, the National Credit Union Administration, the Office of the Comptroller of the Currency, the Office of Federal Housing Enterprise Oversight, and the Office of Thrift Supervision. …