Avoid Predatory Lending and Unregulated Bad Credit Lenders

By Gina Pogol
Mortgage Credit Problems Columnist

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A recent article by the Washington Post indicated that federal regulators were concerned about the 2 million subprime mortgages that are expected to adjust in the next 2 years. About half of subprime loans are made by lenders subject to no federal regulation, and a substantial number of these loans were made without considering the borrower's ability to repay them.

Federal Deposit Insurance Corp. (FDIC) Vice Chairman Martin Gruenberg indicated that the rapid growth in subprime lending has generated a rash of predatory lending activity. "It now appears that the most elementary notion of predatory lending--the failure to underwrite based in the borrower's ability to pay--became prevalent in the subprime home mortgage market," he said.

Because many subprime lenders don't take deposits like banks do, they fall under a hodgepodge of different laws depending on the state in which they are licensed. Nineteen states, for example, don't do criminal background checks on lenders. And fully half the states have no laws against predatory lending.

If you have bad credit, how do you know that you're getting a fair deal? First, shop around for your mortgage--and make sure that at least one bid comes from a federally-regulated lender (you can check the FDIC.gov site). Federal lenders also display the Fair Housing Lender and FDIC logos. Compare all bids and throw out those that are out of line. Then, look at those that remain and make sure that the payment is affordable to you--now and if it adjusts upward in the future. If you already have a home loan you suspect might be from a predatory bad credit mortgage lender, get some bids from reputable firms--you might be able to refinance into a better loan today.

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