What are Predatory Loans?
A predatory loan is one in which the borrower is not the one who benefits from the loan. In most cases this will apply to mortgages since having the house for security makes it less risky for the lender. A predatory loan will normally leave the borrower stuck paying more than they have to and in many cases cause them to fail to make the payments and lose their home.
The main feature of predatory loans are that they come with excessive fees. All mortgages come with certain fees that are attached to them but in the case of a predatory loan that fee will often be five times what it would be for people with a regular mortgage. Obviously this adds greatly to the cost of the mortgage, usually in the thousands of dollars. As a general rule the fees that come with a mortgage normally shouldn't be more then one percent of the total amount of the mortgage. If you are paying more than that you may have a predatory loan.
One of the other common features of a predatory loan is that it will almost always come with an early payment penalty that is so excessive that it is virtually impossible for the borrower to transfer to a different mortgage. This is a serious issue because many of the people who have predatory loans had to take them because they had poor credit. However after a few years of making on time payments the improvement in your credit should allow you to take out a regular mortgage at better terms. However with the excessive repayment penalties this is impossible and the borrower is stuck paying a mortgage that costs them more than it should.
In a lot of cases a predatory loan will also include a clause that makes arbitration mandatory in order to settle disputes. If you sign a mortgage that contains this clause you are effectively signing away your legal rights. You are giving up the right to go to court to resolve a dispute in order to have the matter settled by an arbitrator. The problem is that normally the arbitrator will be selected by the lender. Even worse there is no way to appeal a decision that you don't agree with. This basically puts all the power in the hand of the lender in the event of a dispute.
One of the odd things about predatory loans is that so many people have them despite the fact that they don't need them. In almost all cases a predatory loan will be used in cases where somebody has a sub prime mortgage. That is they wouldn't qualify for a regular mortgage. However it has been estimated that up to half of the people with sub prime mortgages would actually qualify for a regular mortgage. Predatory lenders use a hard sales pitch to get people to agree to their terms even when it isn't necessary.