Unnecessary Products Sold By Predatory Lenders
Upon taking out a mortgage loan, predatory lenders take advantage of the borrower and aggressively sell the borrower unrelated products. Specifically, predatory lenders often add unnecessary insurance products to a mortgage loan, otherwise known as "packing", which increase loan costs to borrowers. Such unnecessary products mainly include different types of insurance such as regular mortgage insurance, fire and hazard, credit life, accident, health and involuntary unemployment insurance. Predatory lenders usually manipulate the borrower into buying such extraneous insurance products. Thus, the premium for such unnecessary insurance products is often added to the loan amount, and where the cost is not explicitly apparent to the borrower. Predatory lenders intimidate and manipulate borrowers into buying such products because the lenders make large commissions on the insurance premiums, especially when the premiums are paid in advance.
Even though private mortgage insurance seems like a good idea, there is another side that is often not explored. Private mortgage insurance is an insurance policy that is required for all loans over an 80 percent loan to value ratio. Private mortgage insurance is for the benefit of the lender, not the borrower. It protects the lender against default by the borrower. It is an expense that the borrower pays for, for the sole benefit of the lender. When the property value exceeds the 80 percent loan to value ratio, the borrower is no longer required to pay for the private mortgage insurance premium. Thus, the borrower should and must contact their lender to have the insurance premium removed when the 80 percent loan to value ratio is exceeded.
Ultimately, insurance products packed onto the private mortgage insurance premium are unnecessary, and borrowers should shy away from them. Also, private mortgage insurance can be removed once the property value exceeds the 80 percent loan to value ratio as discussed above.