Wednesday, November 12, 2008

Deceptive Practices in the Subprime Market

In a report to Congress last year the FTC cited many deceptive and illegal practices that were uncovered in the subprime market. This list of practices is disheartening, especially when you consider that borrowers in the subprime market were allready experiencing financial difficulties before they were duped.
  • Lenders told borrowers they would save money when consolidating their existing debts, but these "savings claims" did not take into account the loan fees and closing costs the company typically added to the consumers' loan amounts.
  • Lenders did not reveal that consumers would pay only interest and would still owe the entire principal amount in a "balloon" payment at the end of the loan term.
  • Lenders included single-premium credit insurance in loans, without disclosing its inclusion to consumers.
  • Lenders deceived consumers about key loan terms, such as the existence of a prepayment penalty or a large balloon payment due at the end of the loan?
  • Lenders falsely promised consumers low fixed payments and rates on their mortgage.
  • Lenders conducted business with his clients almost entirely in Spanish, and then provided at closing loan documents in English containing the less favorable terms.
  • Lenders deceptively induced consumers to purchase expensive add-on products to obtain costly refinance loans, and to pay fees to participate in a "direct deposit" program.

Report here

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