Developed by NJCA1 Buying your first home… Avoiding Financial Frauds

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.

Developed by NJCA3 Overview Understanding: The state and federal laws that support fair housing and protect consumers Before you buy The buying process Types of mortgage loans Risks of subprime loans Predatory mortgage lenders Other risky financial activities

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

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

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)

Developed by NJCA7 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!

Developed by NJCA8 Buying Process Financing your home: Mortgage Broker, Banker, Solicitor, Originator Credit review Mortgage Application Do I need a lawyer? Purchase agreement Inspection and appraisal Title search Closing

Developed by NJCA9 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.

Developed by NJCA10 Commonly Used Mortgage Terms Debt to Income Ratio Down Payment Private Mortgage Insurance (PMI) Interest Rate

Developed by NJCA11 Shopping for a Mortgage Prequalify/Preapproval Application Costs and closing fees Know the Lender Types of Loans Prime Subprime Predatory

Developed by NJCA12 Prime Loan Programs Conventional Government program (VA, FHA, Fannie Mae) CRA (below market) Lower interest rate No points, no PMI Low application fee May include closing cost assistance

Developed by NJCA13 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

Developed by NJCA14 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

Developed by NJCA15 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

Developed by NJCA16 Targets People of Color Seniors Low-income individuals Non-English speaking/reading Residents in urban or rural areas People with poor credit Homeowners who are in financial crisis

Developed by NJCA17 Predatory Lending Results in Can’t make payments Pay much more than necessary Never pay off loan Foreclosure Lose investment Ruined credit

Developed by NJCA18 Types of Predatory Scams First time Homebuyers Beware: Property flipping Referral Scams Liar Loans Homeowners Beware: Home improvement Scam Debt Consolidation Scams Refinance Loans

Developed by NJCA19 Predatory Advertising No money down! When everyone says no, we say yes! Credit problems? No problem! No one refused!

Developed by NJCA20 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

Developed by NJCA21 Alternatives to Risky Financial Activities or while you are repairing your credit… Budget - Set aside $ each week/month to save Sign agreements with all people in a savings or investment club Don’t play the lottery- the odds are slim; Buy 1 lottery ticket Don’t sell anything you don’t want to lose at a pawn shop Sell and buy items at a garage sale or with classified ads Don’t go to a rent-to-own shop - save up until you can afford to purchase. 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 a cash advance Find a qualified lawyer through Legal Services or bar association Use free tax prep provided by IRS & local nonprofits & get earned income tax credit Borrow money from family or friends if it’s an emergency Contact HUD-certified counseling agency to help with home ownership

Developed by NJCA22 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

Developed by NJCA23 Do your part Learn Avoid Share info with others Report Important numbers: NJCA or njcitizenaction.org DOBI NJ Division Consumer Affairs HUD or hud.gov Legal Services of NJ LSNJ-LAW