Protect yourself from unfair home loans
By Attorney General Roy Cooper
In 1999, North Carolina became the first state in the nation to pass a comprehensive law to protect consumers from unfair home loans. Since North Carolina passed its law, at least a dozen other states have followed us with their own anti-predatory lending laws. This year, we worked with state legislators to pass new laws that will even better protect homeowners from unfair loans and also help fight the recent rise in foreclosures. And just this week, Congress introduced national anti-predatory lending legislation that is based on North Carolina’s law.
So how do North Carolina’s laws protect you? The law bans so-called loan flipping, which can happen when a lender refinances your loan with a new loan to generate fees, not to benefit you. The law keeps lenders from “packing” overpriced credit insurance into your loan. Prepayment penalties, fees charged to consumers for paying off loans ahead of schedule, are also restricted.
Thanks to new laws, my office, the Commissioner of Banks, the Real Estate Commission and local District Attorneys will now have more power to investigate mortgage fraud. North Carolinians who are the victim of predatory mortgage loans
can seek justice in local courts instead of having to go to court in another state. And consumers who face losing their home to foreclosure
will now get more information about their rights.
There are new protections for certain borrowers such as requiring lenders to verify that you’ll be able to repay a loan, even if the interest rate goes up. The law bans mortgage brokers from unfair, misleading, or deceptive advertising for mortgage loans. Mortgage brokers who are arranging an adjustable rate loan, where the interest rate can go up over time, also have to tell you how much you’d pay for a fixed rate loan, where the interest rate is locked in.
But even with North Carolina’s tough laws, it’s still smart to educate yourself before you take out a home loan. My office got almost 2,000 complaints from consumers about loans and credit last year alone. Consumers’ complaints often involve problems with loan payments, adjustable rates, penalties and fees.
Follow these tips if you’re in the market for a home loan:
Shop around for the best loan. Loans are available from several types of lenders - commercial banks, mortgage companies, savings and loans and credit unions, among others. Different lenders may quote you different prices, so checking with several lenders is the best way to find the right loan at a fair price.
Compare loan costs. Ask different lenders for information about the same loan amount, loan term and type of loan. Also, be sure to review the list of closing costs and fees. Keep in mind that a loan with a low interest rate but high fees and points may cost you more than a loan with a higher interest rate and lower fees.
Look at the annual percentage rate (APR). The APR is one of the most important things to compare when shopping for a loan. Generally, the lower the APR, the lower the cost of your loan.
Understand adjustable rates. If you are offered an adjustable rate mortgage loan (ARM), be sure you understand how the rate will change over time and how much your payments may increase. Some ARMs are set up to increase in rate even if market rates are declining.
Don’t borrow more than you can reasonably pay back. Make sure you can afford the payments on the loan and have enough in reserve to cover emergencies and unforeseen expenses. Just because a lender tells you that you qualify for a higher loan amount doesn’t mean you should take it. And don’t rely on promises that you can refinance to a lower rate and lower payments after a year or two.
Read the entire loan application carefully before signing. Don’t sign a loan form with blank spaces. Make sure that you’ve received, read and understood all required disclosure documents before you close. At closing, make sure the loan terms haven’t changed and that there aren’t any additional fees you weren’t expecting.
Attorney General Roy Cooper and his staff are on the lookout for scams that seek to rob unsuspecting North Carolinians. We are here to be of service when you need us at 1-877-5-NO-SCAM, but through consumer education efforts like these columns we hope to help consumers avoid problems from the start.