“Rescue” Home Loans are Predatory, Texas Economist Warns

By now, we hope most borrowers are aware that bad credit home loans can be dangerous. Effective? Sometimes. But risky, as well.

Texas economist, however, is warning potential owners to stay entirely away from a new kind of bad credit mortgage loan, one he labels as a form of “predatory lending practice.”

Dr. Mark Dotzour, chief economist for the Real Estate Center at Texas A&M University in College Station, Texas says “rescue loans” are targeting distressed homeowners in the subprime lending market.

Borrowers should just walk away when they hear the term.

Under the terms of a “rescue loan,” predatory lenders promise borrowers they can use their home loans to catch up on payments. In exchange, the lender takes over the title and promises the borrower he/she can live in the home and pay rent.

There’s just one problem, says Dotzour: “homeowners are neither rescued, nor do they actually receive loans.” In most cases, the predatory lender sells the home and sends an eviction notice.

“Homebuyers who purchased homes with subprime loans are especially vulnerable,” said Dotzour. “Predatory lenders are targeting subprime borrowers who have some equity built up in a home, but who are having difficulty meeting monthly mortgage payments.”

Dotzour says with foreclosures up 27 percent in the last 12 months, scam artists have their pick of homeowners in trouble. He says one thing to remember is “rescue loans” are not really loans.

“The scam is called a loan, but it’s not,” said Dotzour. “It really is a buy-out with a leaseback.”

It’s helpful advice to consider. Due to the complicated nature of the loan process, it’s recommended that you sit with a mortgage broker and discuss every last detail of any deal before you sign on any dotted lines.