Refinancing Predatory Mortgage Loans

Refinancing Predatory Mortgage Loans

In communities across the country, predatory lenders, appraisers, and mortgage brokers seek to exploit and trap uninformed potential homebuyers. Some predators sell overvalued properties using false appraisals, or deliberately lend more money than a borrower can afford to repay. Others charge high interest rates based on race, not credit history, while some assess fees for unnecessary or nonexistent products and services.

Victims of these unscrupulous lenders have had little recourse — until now. The nonprofit National Community Reinvestment Coalition helps free consumers from the trap of usurious interest rates and exorbitant mortgage payments. Working in conjunction with nonprofit community groups nationwide, NCRC is refinancing such loans through its National Anti-Predatory Lending Consumer Rescue Fund (, 800-475-6272).

The Consumer Rescue Fund offers qualified homeowners a new, low-interest mortgage, often below the prime rates and provides counseling at no charge. The fund also pays all up-front expenses, including appraisal fees and closing costs. As an incentive to get borrowers to pay on time, the interest rate drops one-quarter of a percentage point for each year of timely payments (up to a 3% discount cap).

The fund helped Maxine and Terry Wilson. In 1996, the couple bought a house in Coram, New York, through a Brooklyn developer, Toussie Family Homes. The couple paid $146,000 — $21,000 more than it was worth — for a 1,200-square-foot, three-bedroom, two-bath house.

There were warning signs. First, the property description on the purchase contract cited more affluent neighborhoods. Second, the contract promised upgraded cabinets, carpeting, and appliances that had not been installed when the Wilsons toured the house before closing. “You had to close on the set date because the contract said you would otherwise lose your deposit. We had put down $7,000,” says Maxine, a 40-year-old executive assistant.

The Wilsons’ mortgage payments had been made affordable artificially — not enough escrow was required at the time of purchase. After the first year, the Wilsons’ monthly payments jumped from $1,200 to $2,070 as a result of escrow shortages and the developer reneging on an agreement to pay taxes for the first year. Last year, the fund granted the Wilsons a $237,000 mortgage to cover the original loan, interest, and arrears. With a new 30-year mortgage at a 3.29% fixed interest rate, their payments dropped to $1,035 a month.


  1. The annual percentage rate is much higher than the listed interest rate.
  2. The mortgage includes single premium lifeinsurance or a large prepayment penalty.
  3. The mortgage payment does not include escrow for taxes or insurance.
  4. A contractor or other home-service provider offers to arrange the loan.
  5. The loan officer promises to refinance the mortgage at a lower rate at a later date.
  6. The developer won’t provide closing documents prior to closing.
  7. The contract requires the buyer to close even if the seller breaks the contract.