Predatory Lending: Common Ethical Issue Among Mortgage Lenders
In the mortgage field, there is a lot of money at stake. Properties may cost several hundred thousand or even several million dollars. Because of this, mortgage lenders sometimes take advantage of potential buyers. They don’t make any money when they can’t approve a customer for a loan, so they’ll think of creative ways to approve the buyers, even if these methods are unethical.
This is called predatory lending and this unfair practice benefits only one person: the lender. Predatory lending may encompass multiple acts and those who engage in it can lose their license.
What Are the Signs of Predatory Lending?
As a mortgage lender, you should know what actions are considered unethical so you don’t risk losing your license. One of the most common signs is a high interest rate. In Florida, the average interest rate for a home loan is 3.97%. While it’s common to charge a higher rate for a buyer who has a less-than-ideal credit score, charging 10%, for example, is way too much.
Charging exorbitant fees is also a sign of predatory lending. While the homebuying process involves several types of fees, such as an appraisal fee, credit report fee, title search fee and application fee, the key is to not charge too much for them. For example, the average appraisal fee runs from $300 to $450. If you’re charging $1,000, that’s a bit too much. Make sure all the fees you do charge are disclosed. Many buyers get blindsided by hidden fees.
Loan packing is another type of predatory lending. Don’t pack unnecessary items into a buyer’s mortgage. If you feel that the person would benefit from such items, such as mortgage insurance, then by all means explain the pros and cons. However, adding components to a person’s mortgage without their consent is unethical.
Many homeowners refinance their home so they can get extra cash or a lower payment. Some mortgage lenders, however, do the opposite through a process called loan flipping. They turn your current loan into one with a higher interest rate and longer term. This does nothing to benefit the buyer.
Offering a loan without a credit check is something a mortgage lender should never do. If you don’t check a client’s credit, you are willfully providing them with a mortgage they may not be able to pay and forcing them to go into debt.
Keep Your License With Help From a Tampa Mortgage Lenders Licensing Lawyer
Many people dream of homeownership and may do what they can to own a home. It is common for potential home buyers to get lured in by promises of no money down and no credit check required in return for higher rates and monthly payments, but these practices are unethical and illegal.
Mortgage lenders must engage in ethical practices at all times. If you are facing licensing issues due to your actions, get help from a Tampa mortgage lenders licensing lawyer at the Law Offices of David P. Rankin, P.A. He was chosen to represent the Greater Tampa Realtors for over 16 years. To schedule a consultation, fill out the online form or call our office at (813) 968-6633.