What we verified in “Predatory refinancing: warning signs and your rights”

Statements and where we checked them

The statements with rules, figures or dates, with the exact place in the source and the date we checked them.

1. In its policy on predatory lending, the FDIC says there is no simple checklist for deciding whether a loan is predatory and that subprime lending must be distinguished from predatory lending; it cites three elements, at least one of which a predatory loan involves: making unaffordable loans based on the borrower's assets rather than the borrower's ability to repay; inducing a borrower to refinance repeatedly to charge high points and fees each time ('loan flipping'); and using fraud or deception to conceal the true nature of the loan or of ancillary products.

   Sources 1 · FDIC Supervisory Policy on Predatory Lending (FIL-6-2007, January 22, 2007), 'Characteristics of Predatory Lending': 'There is no simple checklist for determining whether a particular loan or loan program is predatory'; 'it is important to distinguish subprime lending from predatory lending'; 'predatory lending involves at least one, and perhaps all three, of the following elements'; 'Making unaffordable loans based on the assets of the borrower rather than on the borrower's ability to repay an obligation'; 'Inducing a borrower to refinance a loan repeatedly in order to charge high points and fees each time the loan is refinanced'; 'Engaging in fraud or deception to conceal the true nature of the loan obligation' · Checked October 17, 2026

2. Under Regulation Z, for dwelling-secured loans covered by the rule (it does not cover, for example, home equity lines of credit), the creditor may not make the loan without a reasonable and good faith determination that you will be able to repay it according to its terms; to do so it must consider, among other things, your income or assets other than the value of the home securing the loan, your debts, alimony and child support, and your credit history, and verify the information with reasonably reliable third-party records.

   Sources 2 · 12 CFR §1026.43(a)(1) ('A home equity line of credit subject to'), (c)(1) ('A creditor shall not make a loan that is a covered transaction unless the creditor makes a reasonable and good faith determination at or before consummation that the consumer will have a reasonable ability to repay the loan according to its terms'), (c)(2)(i) ('other than the value of the dwelling'), (c)(2)(vi) ('current debt obligations, alimony, and child support'), (c)(2)(viii) ('credit history') and (c)(3) ('using reasonably reliable third-party records') · Checked October 17, 2026

3. Under Regulation Z, a loan secured by your principal dwelling is a 'high-cost mortgage' (HOEPA) if its annual percentage rate (APR) exceeds the average prime offer rate (APOR) for a comparable transaction by more than 6.5 percentage points on a first-lien loan, or by more than 8.5 points on a subordinate-lien loan; if its points and fees exceed 5 percent of the total loan amount (for loans above an amount adjusted every year) or, for smaller loans, the lesser of 8 percent or a dollar figure that is also adjusted; or if the contract allows a prepayment penalty more than 36 months after closing or of more than 2 percent of the amount prepaid. The rule does not apply to reverse mortgages, loans to finance the initial construction of a dwelling, loans made directly by a Housing Finance Agency, or USDA Section 502 Direct Loans.

   Sources 3 · 12 CFR §1026.32(a)(1)(i) ('will exceed the average prime offer rate'), (a)(1)(i)(A) ('6.5 percentage points for a first-lien transaction'), (a)(1)(i)(C) ('8.5 percentage points for a subordinate-lien transaction'), (a)(1)(ii)(A) ('5 percent of the total loan amount for a transaction with a loan amount of'; 'adjusted annually on January 1'), (a)(1)(ii)(B) ('The lesser of 8 percent of the total loan amount'), (a)(1)(iii) ('more than 36 months after consummation or account opening'; 'more than 2 percent of the amount prepaid') and (a)(2) ('A reverse mortgage transaction subject to'; 'A transaction to finance the initial construction of a dwelling'; 'where the Housing Finance Agency is the creditor for the transaction'; 'Section 502 Direct Loan Program') · Checked October 17, 2026

4. The CFPB explains in plain language that the average prime offer rate is an estimate of the rate people with good credit typically pay for a similar mortgage; that high-cost mortgage protections also apply to a loan to refinance the mortgage on your home and to home equity loans and lines of credit; that before making the loan the lender must certify that you received counseling; that lenders can no longer add many kinds of fees and charges to the amount you borrow, a practice that led to abuses in the past; and that you can complain to the CFPB at www.consumerfinance.gov/complaint or (855) 411-CFPB (2372).

   Sources 6 · What the new high-cost mortgage protections mean for consumers (CFPB, January 10, 2013): 'which is an estimate of the rate people with good credit typically pay for a similar first mortgage'; 'A loan to refinance the mortgage on your home'; 'A home equity loan or home equity line of credit (HELOC)'; 'Certify that you have received homeownership counseling'; 'lenders can no longer add many kinds of fees and charges to the amount you borrow, a practice that led to abuses in the past'; 'www.consumerfinance.gov/complaint'; '(855) 411-CFPB (2372)' · Checked October 17, 2026

5. Under Regulation Z, on a high-cost mortgage the creditor must give you this notice in conspicuous type: you are not required to complete the agreement merely because you received these disclosures or signed a loan application; if you obtain the loan, the lender will have a mortgage on your home; and you could lose your home, and any money you have put into it, if you do not meet your obligations under the loan.

   Sources 3 · 12 CFR §1026.32(c)(1): 'You are not required to complete this agreement merely because you have received these disclosures or have signed a loan application'; 'If you obtain this loan, the lender will have a mortgage on your home'; 'You could lose your home, and any money you have put into it, if you do not meet your obligations under the loan' · Checked October 17, 2026

6. Under Regulation Z, a high-cost mortgage may not include, among other terms: a payment more than twice a regular payment (a balloon payment), except in cases such as a schedule adjusted to seasonal or irregular income or a bridge loan of 12 months or less; regular payments that make the balance grow; an interest rate increase after default; prepayment penalties; or a clause letting the creditor demand the whole balance early, except for fraud, failure to pay or acts that harm the collateral.

   Sources 3 · 12 CFR §1026.32(d): 'A high-cost mortgage shall not include the following terms'; (d)(1)(i) 'a payment schedule with a payment that is more than two times a regular periodic payment'; (d)(1)(ii) 'adjusted to the seasonal or irregular income of the consumer'; 'A loan with maturity of 12 months or less'; (d)(2) 'regular periodic payments that cause the principal balance to increase'; (d)(4) 'An increase in the interest rate after default'; (d)(6) 'Prepayment penalties'; (d)(8) 'A demand feature that permits the creditor to accelerate the indebtedness' · Checked October 17, 2026

7. Under Regulation Z, within one year of making a high-cost mortgage, a creditor may not refinance it for the same consumer into another high-cost mortgage unless the refinancing is in the consumer's interest; and no creditor may structure a loan with the intent to evade the high-cost rules, for example by splitting it into separate parts.

   Sources 4 · 12 CFR §1026.34(a)(3): 'Within one year of having extended a high-cost mortgage, a creditor shall not refinance any high-cost mortgage to the same consumer into another high-cost mortgage, unless the refinancing is in the consumer's interest'; (b): 'with the intent to evade the requirements of a high-cost mortgage'; 'including by dividing any loan transaction into separate parts' · Checked October 17, 2026

8. Under Regulation Z, a creditor may not make you a high-cost mortgage without receiving written certification that you received counseling on whether the loan is advisable from a counselor approved by the Department of Housing and Urban Development (HUD); the counselor may not be employed by or affiliated with the creditor; and the creditor may pay for that counseling.

   Sources 4 · 12 CFR §1026.34(a)(5)(i) ('A creditor shall not extend a high-cost mortgage to a consumer unless the creditor receives written certification that the consumer has obtained counseling on the advisability of the mortgage from a counselor that is approved'; 'Department of Housing and Urban Development'), (a)(5)(iii) ('shall not be provided by a counselor who is employed by or affiliated with the creditor') and (a)(5)(v) ('A creditor may pay the fees of a counselor or counseling organization') · Checked October 17, 2026

9. Under Regulation Z, neither the creditor nor the broker may recommend or encourage you to default on an existing loan or debt before a high-cost mortgage that refinances it.

   Sources 4 · 12 CFR §1026.34(a)(6): 'may not recommend or encourage default on an existing loan or other debt prior to and in connection with the consummation' · Checked October 17, 2026

10. Under Regulation Z, on a high-cost mortgage you cannot be charged a fee to modify, renew, extend or amend the loan or to defer a payment; a late fee may not exceed 4 percent of the past-due payment and may be charged only if the payment is not received by the end of the 15-day period starting on the due date; in general you cannot be charged for a payoff statement, which must be provided within five business days; and the creditor may not finance the charges that count as points and fees into the loan.

    Sources 4 · 12 CFR §1026.34(a)(7) ('may not charge a consumer any fee to modify, renew, extend or amend a high-cost mortgage'), (a)(8)(i) ('may not exceed 4 percent of the amount of the payment past due'), (a)(8)(ii) ('by the end of the 15-day period beginning on the date the payment is due'), (a)(9)(i) ('may not charge a fee for providing to a consumer'), (a)(9)(v) ('within five business days after receiving a request') and (a)(10) ('may not finance charges that are required to be included in the calculation of points and fees') · Checked October 17, 2026

11. Under Regulation Z, the creditor may not pay a contractor under a home improvement contract directly from the proceeds of a high-cost mortgage: payment must be by an instrument payable to you, or jointly to you and the contractor, or, if you choose, through a third-party escrow agent under a written agreement signed beforehand.

    Sources 4 · 12 CFR §1026.34(a)(1): 'A creditor shall not pay a contractor under a home improvement contract from the proceeds of a high-cost mortgage'; 'By an instrument payable to the consumer or jointly to the consumer and the contractor'; 'through a third-party escrow agent' · Checked October 17, 2026

12. Under Regulation Z, in a loan that places a security interest on your principal dwelling, each owner whose interest is subject to it has the right to rescind (cancel) the transaction, with exceptions; you notify the creditor in writing; the period lasts until midnight of the third business day after the last of closing, delivery of the rescission notice and delivery of all material disclosures; if the notice or those disclosures were not delivered, the right expires 3 years after closing or when you sell or transfer the property; the creditor must give each owner two copies of the notice; while the period runs no money is disbursed except into escrow; if one owner rescinds, it counts for all; on rescission the security interest becomes void and you owe no finance charge; and the creditor must return money or property within 20 calendar days after receiving your notice.

    Sources 5 · 12 CFR §1026.23(a)(1) ('each consumer whose ownership interest is or will be subject to the security interest shall have the right to rescind the transaction'), (a)(2) ('by mail, telegram or other means of written communication'), (a)(3)(i) ('until midnight of the third business day following consummation'; 'whichever occurs last'; 'the right to rescind shall expire 3 years after consummation'), (a)(4) ('the exercise of the right by one consumer shall be effective as to all consumers'), (b)(1) ('two copies of the notice of the right to rescind to each consumer entitled to rescind'), (c) ('no money shall be disbursed other than in escrow'), (d)(1) ('the consumer shall not be liable for any amount, including any finance charge') and (d)(2) ('Within 20 calendar days after receipt of a notice of rescission') · Checked October 17, 2026

13. Under Regulation Z, you may waive or shorten the right of rescission only if you need the credit for a bona fide personal financial emergency, with a dated written statement that describes the emergency and is signed by all owners entitled to rescind; printed forms for this purpose are prohibited.

    Sources 5 · 12 CFR §1026.23(e): 'bona fide personal financial emergency'; 'a dated written statement that describes the emergency'; 'bears the signature of all the consumers entitled to rescind'; 'Printed forms for this purpose are prohibited' · Checked October 17, 2026

14. According to the CFPB, you have the right of rescission for most mortgages that are not used to buy the home, such as refinances and home equity loans: three business days to cancel, counting Saturdays but not Sundays or legal public holidays; you must notify the lender in writing, using its form or a letter, and calling or visiting is not enough; make sure your notice is delivered or mailed before midnight of the third business day and keep a copy; you can cancel for any reason or no reason; and if you rescind the refinance, you still owe your original loan.

    Sources 7 · Can I change my mind after I sign the loan closing documents for my second mortgage or refinance? (last reviewed Aug 08, 2024): 'for most non-purchase money mortgages'; 'Refinances and home equity loans are examples of non-purchase money mortgages'; 'business days include Saturdays, but not Sundays or legal public holidays'; 'You must notify your lender in writing'; 'You may use the form provided to you by your lender or a letter'; 'You can't rescind just by calling or visiting the lender'; 'make sure it is delivered or mailed before midnight of the third business day after your closing and keep a copy for yourself'; 'for any reason or no reason at all'; 'you will still have to pay the original loan' · Checked October 17, 2026

15. According to the CFPB, you do not have a right of rescission when the loan is used to buy or build your principal home, when you refinance or consolidate with the same creditor a loan already secured by your home and borrow no additional funds, or when a state agency is the creditor.

    Sources 8 · Are there situations where I would not have a right of rescission? (last reviewed Sep 11, 2024): 'Your loan is used to purchase or build your principal home'; 'You consolidate or refinance with the same creditor a loan that is already secured by your home, and no additional funds are borrowed'; 'A state agency is the creditor for the loan' · Checked October 17, 2026

16. According to the CFPB, if you never received the Truth-in-Lending disclosure or the notice of your right to rescind and were entitled to them, you may still be able to rescind, but you must act within the first three years after signing or before you sell your home, whichever comes first; and if you rescind, you will have to give back the money you borrowed.

    Sources 9 · My lender or broker never provided me with the notice of a right to rescind for a mortgage loan. What can I do? (last reviewed Aug 08, 2024): 'you may still be able to rescind your mortgage loan'; 'you must take action during the first three years after you sign the mortgage contract, or before you sell your home'; 'you will have to give back the money that you borrowed if you rescind the loan' · Checked October 17, 2026

17. According to the CFPB, you do not have to sign anything unless you are satisfied with the terms; if you are refinancing your existing mortgage, you have no contractual obligation to sign the documents; never sign anything you do not understand, and do not sign if you think you will not be able to pay back the loan; sometimes you can correct the terms instead of walking away; and you can submit a complaint to the CFPB online or by calling (855) 411-CFPB (2372).

    Sources 10 · At the mortgage loan closing, do I have to sign if I don't like the terms? (last reviewed Jan 14, 2025): 'You don’t have to sign anything unless you're satisfied with the terms'; 'you may be able to make corrections to the terms instead of walking away'; 'If you are in the process of refinancing your existing mortgage, you don't have any contractual obligation to sign the documents'; 'You should never sign anything that you don't understand'; 'if you think that you won't be able to pay back the loan'; 'submit a complaint to the CFPB online or by calling (855) 411-CFPB (2372)' · Checked October 17, 2026

18. According to the CFPB, every mortgage has services and origination costs, even if some are advertised as having no lender fees or no closing costs; the lender does this by charging a higher interest rate in exchange for a credit, or by adding the closing costs to the loan amount; a higher rate means paying more over time, and a larger loan amount increases your payments and reduces your equity.

    Sources 11 · Is there such a thing as a no-cost or no-closing cost loan or refinancing? (last reviewed Apr 03, 2024): 'There are services rendered and costs related to originate all mortgages'; 'charging you a higher interest rate and giving you a credit'; 'adding the closing costs to your loan amount'; 'increase your payments and reduce your equity' · Checked October 17, 2026

19. According to the CFPB, a prepayment penalty is a fee some lenders charge if you pay off all or part of your mortgage early; not all mortgages have one; it typically applies if you pay off the whole balance, for example by selling or refinancing, within a specific number of years (usually three or five); and it recommends asking the lender for a quote on a similar loan without a prepayment penalty to compare total costs.

    Sources 12 · What is a prepayment penalty? (last reviewed Sep 11, 2024): 'A prepayment penalty is a fee that some lenders charge if you pay off all or part of your mortgage early'; 'Not all mortgages have a prepayment penalty'; 'within a specific number of years (usually three or five years)'; 'Ask your lender for a quote for a similar loan without a prepayment penalty' · Checked October 17, 2026

20. VA and the CFPB warned VA borrowers about unsolicited refinance offers that appear official and sound too good to be true; that some provide limited benefit while adding thousands of dollars to the loan balance; that an advertised low rate may be for a 15-year or adjustable-rate mortgage, or require discount points; that you may be pressured to refinance a month or two after your current loan; that benefits such as no out-of-pocket closing costs, skipped payments and escrow refunds are generally added to the loan and increase the principal balance; and that you can reduce offers by calling 888-567-8688 or visiting www.optoutprescreen.com.

    Sources 13 · VA and the Consumer Financial Protection Bureau warn against home loan refinancing offers that sound too good to be true (VA News, November 21, 2017): 'unsolicited offers to refinance your mortgage that appear official'; 'provides limited benefit to you while adding thousands of dollars to your loan balance'; 'the rates are for a 15-year fixed-rate mortgage or an adjustable-rate mortgage, or you may have to pay discount points'; 'You may be pressured to refinance your VA loan only a month or two after you closed on your current VA loan'; 'added to your loan and increase the overall principal balance'; '888-567-8688'; 'www.optoutprescreen.com' · Checked October 17, 2026

21. The FDIC describes scams that promise to pay off your delinquent mortgage if you sign your deed over to an 'investor' and stay as a renter with an option to buy back, but the new owner can evict you, has no obligation to sell the house back and may take out a new mortgage on it; and fake refinances whose documents actually transfer the deed. Its warning signs include demanding a fee in advance, advising you to stop making mortgage payments, instructing you to transfer ownership of your property and asking you to sign a document with blank lines or spaces.

    Sources 14 · Mortgage Scams (FDIC), 'Lease-Back or Repurchase Scams', 'Refinance Scams' and 'Warning Signs': 'a promise is made to pay off your delinquent mortgage'; 'sign your deed over to a'; 'the new owner can evict you'; 'the scammer is under no obligation to sell the house back to you'; 'The scammer may have taken a new mortgage out on your home'; 'documents are actually deed transfer documents'; 'Demands a fee in advance'; 'Advises you to stop making mortgage payments'; 'Instructs you to transfer ownership of your property'; 'Asks you to sign a document that has blank lines or spaces' · Checked October 17, 2026

22. HUD-approved housing counselors give independent advice on buying, renting, defaults, forbearances, foreclosures and credit, often at little or no cost.

    Sources 15 · Find a Housing Counselor: 'Housing counselors throughout the country can provide advice on buying a home, renting, defaults, forbearances, foreclosures, and credit issues'; 'they can offer independent advice, often at little or no cost to you' · Checked October 17, 2026