Lenders who charge excessive fees. Lenders who tell you your loan application won’t be approved if you don’t buy high-priced credit insurance. Lenders who tell you your credit isn’t good when it is.

These are some of the characteristics of predatory lenders — bad apple lenders who prey on unsuspecting or unsophisticated borrowers.

Several branches of the federal government, including the Department of Housing and Urban Development and the Federal Trade Commission have been working in tandem with national mortgage and real estate companies and trade organizations to highlight the financial dangers associated with predatory lenders.

A new, free publication called “Stop Mortgage Fraud” might help.

Published by the Mortgage Bankers Association of America, the booklet clearly outlines the rights a borrower has as well as ten warning signs of predatory lending. In addition, it lists the contact information for each state’s department of consumer protection.

However, as a spokesperson for the MBAA explained, it’s up to each borrower to stand on the frontlines and fight predatory lending with knowledge.

The Borrower’s Bill of Rights is a good place to start. Many borrowers are confused about what information they’re entitled to ask for, and what information the lender is required to deliver.

According to the “Stop Mortgage Fraud” booklet, the borrower has the right to “clear and forthright explanation of the terms and conditions of the loan” and has the right to truthful disclosures regarding the rates and costs of the loan.

The lender should disclose the final annual percentage rate (APR) and the amount of the regular payments in the good faith estimate, due to you within three business days of you applying for your loan. A borrower has the right to not to be subject to deceptive marketing tactics (like “bait and switch” loans, where you think you’re getting one thing, but end up with quite another), and to obtain credit counseling prior to closing on the loan.

Borrowers cannot be forced to finance any portion of fees or points, and they cannot be forced to buy credit insurance as a condition of getting their loan approved. Finally, a borrower has the right to have a mortgage lender report favorable (as well as unfavorable) information to the three major credit reporting bureaus on a timely basis.

Predatory lenders frequently force borrowers to finance hefty fees and points in conjunction with making a loan, padding the lender’s pocket with thousands of dollars in extra profit. On top of that, predatory lenders will collect a hefty commission for selling a credit insurance policy, which pays off your mortgage in case of death. But credit insurance offers an increasingly limited benefit (your mortgage amount declines with every monthly payment) for an extremely high premium.

(You’re much better off buying term life insurance, which will do exactly the same thing but gives you added flexibility for much less money.)

One of the big problems with predatory lenders is that borrowers who truly have poor credit find they can’t get out of that hole because a bad lender will not report their history of on-time payments. Instead, they’ll only report payments missed (if they report the loan at all). When you apply for a loan, you should directly ask the lender if your on-time payments will be reported to a credit reporting bureau. If they won’t, you should immediately withdraw your application from this lender.

According to the MBA, there are several signs of predatory lending that you should be aware of before you start applying for a mortgage or home equity loan, including:

Serial refinancing. If you’ve refinanced your home loan several times and in each case increased either your monthly payment and/or the total amount you owe on your home without doing a “cash out” refinance?

After the closing, were you surprised to find that the monthly payments on your mortgage loan were higher than you’d been told? Is the payment disclosure statement different from your monthly payment?

April 1, 2002