Predatory lending occurs when a mortgage loan with unwarranted high interest rates and fees is set up to primarily benefit the lender or broker. The loan is not made in the best interest of the borrower, often locks the borrower into unfair terms, and tends to result in foreclosure. Examples of predatory lending practices include the following:

• Using false appraisals to sell properties for more than they are worth.
• Encouraging borrowers to lie about their income, expenses, or cash available for down payments in order to get a loan.
• Knowingly lending more money than a borrower can afford to repay.
• Charging high interest rates to borrowers based on their race or national origin and not on their credit history.
• Charging excessive interest or fees and points for unnecessary or nonexistent products and services.
• Pressuring borrowers to accept higher-risk loans such as balloon loans, interest-only payments, and steep pre-payment penalties.
• Targeting vulnerable borrowers to cash-out refinance offers when they know borrowers are in need of cash due to medical, unemployment, or debt problems.
• Taking homeowners' equity from their homes by convincing them to refinance again and again when there is no benefit to the borrower.
• Using high-pressure sales tactics to sell home improvements and then finance them at high interest rates.

Borrowers facing forecloure are often targets of predatory lenders because they are desperate to find a solution. Borrowing against a home may seem attractive when a homeowner is struggling to pay a mortgage and other bills. But if a homeowner is having trouble making current payments, increasing debt will make it harder to keep the home.

Sources: Save the Dream and HUD