Predatory lending is a term typically used to describe unconscionable lending practices where a borrower is provided with an unfair loan. The Office of the Comptroller of the Currency (OCC), which regulates and supervises all national banks and federal savings associations, has described predatory lending as the disregard of basic principles of loan underwriting.
If there was unethical, deceptive, unfair, or fraudulent activity during your loan origination process, your lender may have engaged in predatory lending. Some common examples of predatory loans are negative amortization loans, adjustable rate mortgages, high interest mortgages, and balloon payment loans.
Predatory lending encompasses several different types of abuses that loan originators may engage in. According to the OCC, the fundamental characteristic of predatory lending is “the aggressive marketing of credit to prospective borrowers who simply cannot afford the credit on the terms being offered.” The following are a few situations that may constitute predatory lending:
There are also certain features associated with predatory loans, including:
There is no bright line that a loan must cross to be considered predatory; an assessment must be made on a case by case basis. In court cases, the court will look at each of the factors making up the loan and decide whether the factors, taken as a whole, constitute predatory lending. If a court determines that a loan was predatory, it could order the lender to modify the terms of the loan or cancel the debt, or take any other equitable action.
In 2003, the OCC ordered banks to establish appropriate due diligence and monitoring procedures to ensure that they avoid becoming involved in predatory lending. As such, predatory lending can be raised as a defense to foreclosure by borrowers.
The U.S. Department of Housing and Urban Development (HUD) has funded housing counseling agencies throughout the country to provide free advice regarding foreclosure. If you think you may be a victim of predatory lending and are facing foreclosure, call toll-free (800) 569-4287 or visit the HUD website to find a housing counseling agency near you.