developed by njca1 beware… predatory lending avoiding financial frauds and foreclosure
Post on 19-Dec-2015
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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.
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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
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The American Dream
Owning a home Largest asset Largest investment Financed with loan/ mortgage
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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
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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!
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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
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Commonly Used Mortgage Terms
Debt to Income Ratio Down Payment Private Mortgage Insurance (PMI) Interest Rate
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Shopping for a Mortgage Prequalify/Preapproval Application Costs Know the Lender Types of Loans
Prime Subprime Predatory
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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
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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
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Reverse Mortgage Payment Options
Term Tenure Line of Credit Home Purchase
Reverse Mortgages require counseling
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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
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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
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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
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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!!
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Targets
People of Color Seniors Low-income individuals Non-English speaking/reading People with poor credit Homeowners who are in financial
crisis
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Predatory Lending Results in Can’t make payments Pay much more than necessary Never pay off loan Foreclosure Lose investment Ruined credit
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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
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Predatory Advertising
No money down When everyone says no, we say
yes. Credit problems? No problem! No one refused!
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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
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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
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Foreclosure Rescue Scams Phantom Help Bailout Bait and Switch
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Why Homeowners Fall for the Foreclosure Rescue Scams
Trust that the broker is helping Desperation to save home Affinity marketing Lack of economic sophistication
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Danger signsWatch out for….
“mortgage specialists”, “foreclosure service”
Ads and posters Unsolicited phone calls Being told to stop contact with
lender Blank documents
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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
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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
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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
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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
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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
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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
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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
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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
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Do your part
Learn Avoid Share info with others Report
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Personal Survey: How do I Handle Money?
Please take a few minutes to think about
how you handle money…