2. Developed by NJCA1 Beware… Predatory Lending Avoiding Financial Frauds and Foreclosure

3. Developed by NJCA2 Acknowledgment The work that provided the basis for this presentation was supported by funding under a grant with the U.S. Department of Housing & Urban Development.

4. Developed by NJCA3 Overview Understanding: The state and federal laws that support fair housing and protect consumers The home buying process Types of Mortgages Predatory mortgage lenders & sellers Risks of Subprime Loans Foreclosures statistics Foreclosure Rescue Scams Other Risky Financial Activities

5. Developed by NJCA4 The American Dream Owning a home Largest asset Largest investment Financed with loan/ mortgage

6. Developed by NJCA5 Fair Lending Laws Exist…. Fair Housing Act Anti-predatory lending laws ( e.g. NJ Homeownership Security Act) Community Reinvestment Act Equal Credit Opportunity Act Home Mortgage Disclosure (HMDA) Act Truth and Lending Act

7. Developed by NJCA6 The Fair Housing Act Prohibits discrimination against a prospective tenant or homebuyer due to: Race or Color National Origin Religion Familial Status (have children under 18 or are Pregnant) Gender Disability IF you feel your rights have been violated contact HUD or a fair housing agency (NJCA)

8. Developed by NJCA7 The NJ Homeownership Security Act (NJHOSA) What homebuyers & homeowners should know: This law applies to: Home purchase loans Refinance loans Home improvement loans Also known as anti predatory lending law

9. Developed by NJCA8 What does the NJ anti-predatory lending law do? This law protects homeowners and Homebuyers from : Being charged high points and fees Loan Flipping Being Charged unnecessary credit insurance Balloon Payments Being charged excessive late fees

10. Developed by NJCA9 Other important provisions of the NJ anti-predatory lending law Increased protections for homeowners & homebuyers who enter into high cost (more expensive, high interest) loans: Borrowers must receive counseling from a loan counselor approved by HUD and NJ Department of Banking & Insurance Victims have remedies & rights (including punitive damages) under the new law You may have rights even if your predatory loan is sold to another financial institution For more information about this law contact NJCA or the NJ Department of Banking

11. Developed by NJCA10 Before You Buy Get help – seek HUD-certified counseling Check your credit Determine monthly payment Set your price range Consider possible lenders – Shopping for a Mortgage Loan Know your rights under NJ’s new anti- predatory lending law!

12. Developed by NJCA11 Buying Process Financing your home: who to use? Mortgage Broker Mortgage Banker Mortgage Servicer Mortgage Solicitor Mortgage Originator Credit review Mortgage Application Do I need a lawyer? Purchase agreement Inspection and appraisal Title search Closing

13. Developed by NJCA12 How much debt is too much? Debt-to-Income Ratio = how much you owe compared with how much you earn. Debt-to-Income Ratio = Total monthly debt take-home pay (net income) The lower your debt-to-income ratio, the more you have left over to save or spend on other things.

14. Developed by NJCA13 Commonly Used Mortgage Terms Debt to Income Ratio Down Payment Private Mortgage Insurance (PMI) Interest Rate

15. Developed by NJCA14 Shopping for a Mortgage Prequalify/Preapproval Application Costs Know the Lender Types of Loans Prime Subprime Predatory

16. Developed by NJCA15 Prime Loan Programs Conventional Government program (VA, FHA, Fannie Mae) CRA (below market) Lower interest rate No point, no PMI Low application fee May include closing cost assistance

17. Developed by NJCA16 The Reverse Mortgage Opposite of a Conventional Mortgage Homeowner maintains full ownership Determining the Amount of Money Age Martial status Market value of the home Any debt owed Any other property owned Requirements 62 + years Primary residence Relatively free of debt

18. Developed by NJCA17 Reverse Mortgage Payment Options Term Tenure Line of Credit Home Purchase Reverse Mortgages require counseling

19. Developed by NJCA18 Subprime loans Higher interest rate, points, fees Often offered by mortgage companies Greater credit risk Advertised as last option Higher default rates 20% of all Mortgages in 2006 were Subprime

20. Developed by NJCA19 Types of Subprime Mortgages The difference between fixed vs. adjustable rate mortgages (ARMs) 80 – 20 Mortgages Adjustable Rates – ARMS 2-28, 3-37,5-25 Hybrid (30/5/5, 15/3/3, 80/20s) Pick-a-payment (optional ARM) Negative Amortization Wraparound Interest only

21. Developed by NJCA20 Predatory Lending Components High Pressure Sales or Deceptive Sales Tactics Preys on Lack of Information or lack of Credit Confidence Abuses Lending and Credit Practices Lending Not Beneficial to Homeowner – the loan should be appropriate for the borrower

22. Developed by NJCA21 Signs of Predatory Lending High fees, points or upfront costs Financing unnecessary insurance Outrageous prepayment penalties Hidden balloon payments Blank spaces Repeated refinancing (loan flipping) Many of these practices are now illegal under the new NJ law!!

23. Developed by NJCA22 Targets People of Color Seniors Low-income individuals Non-English speaking/reading People with poor credit Homeowners who are in financial crisis

24. Developed by NJCA23 Predatory Lending Results in Can’t make payments Pay much more than necessary Never pay off loan Foreclosure Lose investment Ruined credit

25. Developed by NJCA24 Types of Predatory Scams First time Homebuyers Beware: Property flipping Referral Scams Liar Loans Homeowners Beware: Home improvement Scam Debt Consolidation Scams Refinance Loans Many of these can result in Equity Stripping

26. Developed by NJCA25 Predatory Advertising No money down When everyone says no, we say yes. Credit problems? No problem! No one refused!

27. Developed by NJCA26 The Housing Crisis: The Dream becomes a Nightmare 1.8 million subprime mortgages will adjust in 2008 and 2009 1.3 million homes subject to foreclosure in 2007 – that’s up 79% from 2006 Housing prices have dropped - homeowners have borrowed more than their homes are worth Unqualified borrowers have received loans Buyers unaware of mortgage terms Homeowners can’t keep up with the payments

28. Developed by NJCA27 New Jersey Statistics Camden, Newark and Edison were already among the 50 United States metropolitan areas with the highest foreclosure rates in 2006 There are 179,873 estimated outstanding subprime mortgages in NJ 35,117 subprime foreclosures are expected between 3 rd Q 2007 and end of 2009 There are 56,394 subprime ARMS in NJ Projected reduction in property values due to foreclosures is 11.1 billion dollars Projected loss in property tax revenue due to foreclosure is 99 million dollars

29. Developed by NJCA28 Foreclosure Rescue Scams Phantom Help Bailout Bait and Switch

30. Developed by NJCA29 Why Homeowners Fall for the Foreclosure Rescue Scams Trust that the broker is helping Desperation to save home Affinity marketing Lack of economic sophistication

31. Developed by NJCA30 Danger signs Watch out for…. “mortgage specialists”, “foreclosure service” Ads and posters Unsolicited phone calls Being told to stop contact with lender Blank documents

32. Developed by NJCA31 Suggestions for Troubled Homeowners Open all bank correspondence Don’t panic, contact lender Never sign Blank documents Away your ownership Under pressure Don’t use credit card debt for mortgage Don’t make mortgage payments to anyone but lender

33. Developed by NJCA32 Who can Help HUD-certified counseling agencies www.hud.govwww.hud.gov NJHOPE Your mortgage lender or servicer The NJ Department of Banking or Insurance (973) 648-4713 The NJ Division of Consumer Affairs (800) 242- 5846 Legal Services of New Jersey (888) 576-5529

34. Developed by NJCA33 What are the options Contact HUD-certified counselor Prioritize debt and spending Use assets, borrow from family Forbearance Agreement Restructure Loan or a Loan Modification Short sale Deed-in-lieu of foreclosure Consider legal action against a predatory or fraudulent lender Talk to your lender and creditors

35. Developed by NJCA34 The Foreclosure Process in NJ Takes a minimum of 9 months Default–usually 3 months missed payment Notice of intention - 33 days Foreclosure complaint filed in Trenton–30 to 60 days Complaint served – 35 days to answer NONContesting complaint– 30 days/ Contesting - trial Notice of entry- final judgment 14 days Writ of execution 45-120 days Homeowner entitled to 2 adjournment -14 days each Sheriff sale – 10 days to redeem Deed transfer – 2 weeks from date of sale

36. Developed by NJCA35 Other Risky Financial Activities Savings Club & Investment schemes Illegal Lotteries or drawings Pawn Shops Rent-to-Own Stores Payday loans Auto title loans Notario Publicos Loan Sharks Rapid Refund Schemes

37. Developed by NJCA36 Alternatives to Risky Financial Activities… Budget - Set aside $ each week to save on your own Signed agreement with all people in a savings/investment club Don’t play the lottery- the odds are slim -or buy 1 inexpensive lottery ticket Don’t sell anything you don’t want to lose at a pawn shop Sell items at a garage sale or with classified ads Don’t use rent-to-own shops - save until you can purchase By used furniture at a garage sale or thrift shop Borrow money from family or friends if it’s an emergency Be sure to find out if you qualify for Earned Income Tax Credit

38. Developed by NJCA37 Alternatives to Risky Financial Activities… Get a small loan from credit union or community org. Ask an employer for an advance Contact creditors & ask for more time to pay your bills Use overdraft protection for your checking account Compare & use credit options such as credit cards or cash advance Find qualified lawyers through Legal Services or bar association Use free tax preparation provided by IRS & local nonprofits Contact a HUD-certified counseling agency to get some help

39. Developed by NJCA38 Protect Yourself Shop around Be sure Lender or Contractor is Licensed NJCA loan counseling Read contract/keep signed & dated copy Don’t sign documents with blank lines Reputable well established Get your own home inspection and attorney

40. Developed by NJCA39 Do your part Learn Avoid Share info with others Report

41. Developed by NJCA40 Personal Survey: How do I Handle Money? Please take a few minutes to think about how you handle money…