Confessions of an Ex-Mortgage Lender, Douglas MacMillan, Yahoo

The linked essay above is about the predatory lending practices of some lenders out there in the marketplace. Mortgage lending and all the paperwork has become increasingly complex over the past few years. Also the types of mortgage loan products that are available to borrowers/customers is mind boggling to say the least. My little sister refinanced her old house several years ago, as it had already been financed to the hilt by a previous hubbie. When the ARM rolled about 3 points she decided that she needed to refinance at a lower rate with another lender. That was AOK, however, the lender who had the loan had a $5,000 prepayment clause tucked into the fine print of the loan. It was either pay the piper to the lender, or loose the home as a single Mom with one child and one dog, since she could no longer afford the higher payments when they rolled upward. No, this was not some smaller lender or mortgage broker -- it was one of the premier financial houses/lenders in the country. That refinance, although painful financially for my sister, afforded her the opportunity to begin her life again after the divorce. 

With all the home-equity lines of credit that some folks use like a credit card buying this and that, it is very easy for folks to get way over-extended in the debt-berg. Many times when they refinance to lessen the debt-berg, their only recourse is to go to one of these predatory lenders. I have one example where local friends of mine did a refinance to clear some heavy duty medical bills. At the time of closing the interest rate was kicked up, and the closing costs were $3,000 to $4,000 more than they were originally quoted. They were extremely desperate and signed the papers. They eventually sold the real estate, and cleared the loan, again with a hefty pre-payment penalty hidden in the fine print. Now they are living in an apartment owned by one of the parents and paying rent to the parents. 

My suggestion is to have an attorney look over loan and closing papers before you sign on the dotted line, and have the attorney re-explain the terms of the loan with you. That way a family can verify what the loan outfit is telling you, and you can avoid surprises hidden in the fine print. It is also advisable to consult your accountant or a financial planner with respect to your financial situation in thinking about a possible re-finance or a new mortgage. The best advice I can give folks is to live within your means and your cash flow. In a world of instant gratification, that can be a most difficult task. 

The above linked essay also has a slide show demonstrating some of the predatory lending practices, which I think is a fairly good overview. Predatory lending [financial "pillaging" for use of a nice word] in our view is a very large powderkeg financially for a lot of nice people who got duped. Good luck to all.