Before Signing on the Dotted Line: A Checklist for Consumers

July 01, 2001

A committee that studied predatory lending practices in the Evansville area advises consumers to meet with an independent loan counselor or at least question their lender if they can check more than three of the following items.

1. Is the deal you've been offered too good to be true?

  • Marketer guarantees the loan will be approved despite your credit problems.
  • Marketer offers to refinance mortgage for much more value than recent purchase price.
  • Marketer insists you can borrow more than 100 percent of the value of your home.
  • Marketer uses statements such as "Trust me--this is legal."
  • Less than one year has passed since you purchased or refinanced.

2. Are processing tactics questionable?

  • A 1-900 number is used to start the process, resulting in phone charges that you must pay.
  • Telemarketer asks you for credit card or bank account number.
  • You are required to sign a broker's agreement with large penalties for terminating the loan process.
  • Marketer offers "to pay for anything at no expense to you."
  • You are told that "no down payment" is not a problem for a home purchase.
  • Marketer does not discuss the length of loan, interest rate, type of loan (fixed, balloon, variable).
  • Marketer does not discuss the Good Faith Estimate of closing costs at application.
  • You are not given a copy of the Good Faith Estimate and/or Truth In Lending statement.

3. Are fees too high? (Check your Good Faith Estimate and Truth in Lending form.)

  • Origination fee is more than 1 percent of loan.
  • Application fees are not credited to closing costs.
  • Total cost of borrowing (closing cost) exceeds 5 percent of money you borrowed.

4. Are loan terms unreasonable for you? (Check your Truth in Lending form.)

  • The loan has a balloon payment. (Most of original loan is due on the last payment.)
  • The interest rate isn't fixed, but changes at a later date.
  • The interest rate is more than 10 percent.
  • Your loan requires a co-signer.
  • Your total monthly debt (house, car, etc.) exceeds 50 percent of your income.
  • The loan has prepayment penalties.
  • The monthly payment does not include property taxes and insurance.
  • You can't afford this payment.

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Bridges is a regular review of regional community and economic development issues. Views expressed are not necessarily those of the St. Louis Fed or Federal Reserve System.

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