 we lose our dogs, you know, it's everything. It's all we've got. We have no other place to go. Lori and Richard paid cash for this fixer-upper five years ago, then took out a loan for repairs. With their expenses mounting, they decided to refinance their mortgage, but that's when their problems really began. The day that we went to sign the papers actually, they said something about, which I didn't understand, about raising us three points from the previous loan. But at the time we were sitting right there ready to sign the papers, pen in hand when he said it to us, which I signed the papers. I thought that was the thing to do. It was a little ignorant. Now Rich and Lori have a lawyer and are fighting off foreclosure. Their case is just one example of a bad situation that could have been avoided. The Federal Reserve Bank of Philadelphia wants you to see their story and the stories of others like them so that you might avoid becoming another victim. Hi. I'm Dr. Marvin Smith of the Federal Reserve Bank of Philadelphia. It seems that every week we hear heartbreaking stories of people who've lost their homes through foreclosure. Congress and federal regulators have worked over three decades to increase the availability of credit, particularly for mortgages and underserved communities. And they've also increased rules to protect consumers from unscrupulous lenders and brokers. But no amount of regulation can substitute for being an informed borrower to help you, your family, friends and neighbors. We've created this video so that you can avoid the mistakes others have made. They all found out the hard way that when you borrow money, using your home as collateral, it can be very painful. Particularly if you don't really understand all the loan terms. You'll want to listen carefully to these stories. This is where it all begun. With the ceiling, having that done, and then these railings was included and this steel door. Veronica owned her home, but she needed some simple repairs that should have cost a few thousand dollars. What she got was debt close to forty thousand dollars. All I knew that it was getting harder and harder for me to take care, I mean to keep the bills up. I was calling different finance companies to see if I could get you know, another loan. I had no idea of how bad things were really. It just built up from fifteen thousand to thirty eight thousand plus a balloon. Beware of balloon loans, which require a large final or balloon payment. In Veronica's case, she owed a balloon payment of twenty nine thousand dollars at the end of her loan when she would be eighty three years old. Plus if she couldn't pay it, she'd lose her home. And refinancing or flipping her loan, taking out another loan to replace the first one, just put her deeper in debt. Then they put me in a homeowner's insurance that I really didn't need because I didn't know they were doing this. What Veronica's really talking about is credit insurance. It's a policy often sold to subprime borrowers and financed in the loan. It's used to pay the debt if the borrower dies, becomes disabled or unemployed. Brokers often push these policies because they get big commissions. Also be aware that credit insurance primarily protects the lender, not you, the borrower. Ethel Mintz had just two years left to pay on her mortgage when she decided to change her oil heat to gas. Unfortunately what she got was a lot of hot air and an enormous debt. I was looking just for a heater, $3,800. But no, I couldn't do it that way. You have to do this, you have to do that. I had to pay off this, I had to pay off that to solidate everything. And I, and I never questioned it at that time. I really didn't. Ethel was convinced the people she was dealing with really wanted to help her, but in fact they were really helping themselves. She finally called attorney Irv Acklesburg who specializes in predatory lending cases where lenders take advantage of uninformed borrowers. This mortgage refinanced her existing mortgage to a higher rate, to a higher rate than she was already paying. It forced her to pay a prepayment penalty for that existing, for paying off that existing mortgage. It charged her over $2,000 in points. It charged her $1,600 for a life insurance product that she wasn't even eligible for. I mean thousands and thousands of dollars loaded into this loan and remember all she wanted was $3,800. So she said, well this is this. I didn't, honestly I didn't read it and I signed it. And this is this. I signed it this and that. I don't know how many pages, but I did. I signed them off. Number one, if you don't understand what you're signing, don't sign it. Mortgage transactions are very complicated. There are a lot of lawyers who can't understand some of these transactions. Ethel's contract with the lender also included an arbitration agreement. That means you can't even get out the content, giving up your right to sue them. And they don't know this all the time, but see they didn't tell you this. What it is, very simply, is a waiver by the consumer of any right to go to any court to rectify any wrong that has been committed. These businesses are getting the consumers to waive their right to the American legal system. Newlywed's Christopher and Elizabeth love everything about their new home, but as they get ready for dinner on a typical night, they recall their mortgage experience and the bitter taste that's left in their mouths. Initially they thought they were approved for a rate that sounded too good to be true. As it turned out, it was. Literally it was like a day beforehand that we were told that it wasn't okay and that they would have to restructure the whole financing thing and like add like 300 bucks on top of our monthly payments. They knew that we had no other place to live. They knew that we've relinquished our apartment. They knew that we had no kind of council. So when they said to us verbally and in an email, your only option is to close. You know, we went to refinance and there was no no refinancing. It was. Didn't work out. Both Chris and Elizabeth say they should have done more shopping around for a mortgage. They especially wish they had an attorney or a credit counselor meet with them to review their loan documents before closing. Finally, they realize they should have had a backup plan. You don't want to put yourself in a situation where you're sitting at the closing table and they come to you with a new deal and you don't have the opportunity to say, you know what? I'm not comfortable with this. I want to take a second. I need to think about this. Levi Moore inherited his house from his parents and lives there with his wife and son. It was paid for. But when the house was damaged by a fire, he had trouble finding a bank loan for repairs and renovations. That's when he finally listened to a man who kept knocking on his door. And we just gave in to him because he was sticking with us. So after we went through the channel with him, you know, we thought we was on easy street, but we was in a jam. In Levi's case, he only saw a portion of the $35,000 he borrowed to repair his house. He says most of it went directly to the contractor even before the work on his home was complete. And after a few weeks, the workers disappeared. They left it in a worse shape that it was them before they got here. And to make matters worse, Levi had to refinance and now has a debt of $90,000 to be paid over the next 30 years. If you're happy and you know what cut your hand. Leslie Thomas was also contacted by a contractor who told her that he could do needed repairs to her home, which she had inherited. But the few thousand dollars she needed turned into a $31,000 loan with a high interest rate. Soon she fell behind. I think I missed one payment. That's when they had sent out, you know, that they're going to take my house. Like when I tried to, um, like make arrangements, they wouldn't let me. Levi and Leslie are typical victims of contractor loans. Attorney Irv Acklesburg says separating the actual home repair contract from the loan will help. Never sign up for a loan that home improvement contractor has brought to you. If you need home improvements, shop separately for the home improvements and for the money. If you think that you need to borrow money, you should go shopping for the money like you would shop for anything else. Don't take the loan that that is brought to you. Find the loan that's right for you. Never borrow more money than you need. If you need $5,000, then find a loan for $5,000. Try to find a loan for what you need. Don't let some loan broker convince you that what you really need is a loan for three or four or five times that. On behalf of the Philadelphia Fed, we hope you found this video helpful. And so do the victims who have allowed us to tell their stories. They all want you to have the knowledge that they gained the hard way. So here are a few suggestions our participants wanted to share with you. Followed by advice from Dee Dee Myers, Vice President and Community Affairs Officer at the Federal Reserve Bank of Philadelphia. I was calling different finance companies to see if I could get another loan. When you need more money, don't mistake more debt for more income. Don't be like us and don't go into it with one. Pay attention to what people say to you. Pay attention to where your money's gone. Pay attention to the statements that these people are sending you. If you borrow, here's what you need to do. Get a commitment letter in writing before the closing date. The lender is required by law to give you a truth and lending statement that details the amount of your loan, the annual percentage rate, the monthly payment, and the term of your loan. Get help from somebody else before you get a second or third opinion before you fall into the same trap that I did. And that's a hurting situation. Have your written loan commitment reviewed by an attorney or a housing counselor. Also have your closing statement reviewed. Understand every single line or just don't sign. I blame myself for not reading, but if anybody else is getting this, make sure you have somebody with you that can read each and every line of the contract because that's how I got stuck. Be especially aware of excessive fees for the broker, prepayment penalties, or credit insurance. Just because your lender or broker treats you politely doesn't mean he has your best interest at heart. Be wary and protect yourself. Anybody who's just so ready to give you some money, think twice about it. Get somebody to look over it. If it's shady, leave it alone. You know, the majority of lenders are honorable, but a few prey on the uninformed. There are thousands of mortgage lenders, so don't settle for a bad situation that you're going to have to deal with for many years to come. If the money comes finding you, go the other way. People knocking on your door, sending you letters in the mail or calling you up at night telling you about a mortgage product. I would say, hang up the phone, close the door, throw out the letter. Those generally are not going to be paths to happiness. If you think something is wrong, it probably is. Just get up and walk away. If you think you may be the victim of an unscrupulous lender, or you know someone who is, here are a few places that can help you. Consumer Credit Counseling Services of Delaware Valley, Home Ownership Counseling Association of the Delaware Valley, Community Legal Services and the Pennsylvania, New Jersey and Delaware Departments of Banking. We hope hearing these stories has helped you understand how to be a more cautious borrower. Thanks for watching.