People looking for a conventional loan can end up making one of the biggest financial mistakes of their lives.
One man who didn't want to be identified -- we'll call him John Smith -- found himself a victim of deceptive lending.
A few years ago, Smith signed up for a loan to consolidate his debt, a loan that would have buried him, not bailed him out.
"The payoff would have been $309,000 on a $60,000 loan," Smith said.
Smith was able to get himself out, because he read the fine print and managed to rescind the deal within three days. He had signed what is known as a predatory loan, designed to take advantage of unsuspecting consumers.
"I just shudder every time I think about it, you know," Smith said.
Smith was the perfect candidate for a predatory loan. He had a limited education, was in a desperate situation and had equity in his home, which the lender was going after.
"And they sell you on the fact that you have this equity and why not get a loan on it knowing they're putting the homeowner at risk," said Dan Betancourt, with Community First Fund.
Michael Sprunger is one of a group of credit counselors taking part of a task force on predatory lending. The task force said it's not a stretch to compare some lenders to loan sharks.
"Probably not, I often say tongue-in-cheek that the reason the Mafia didn't do this is that they didn't automate," Sprunger said.
Predatory lenders target low-income, elderly and minorities, selling them on the idea of using their home equity for a debt consolidation or home-improvement loan they don't need.
"And a lot of these folks don't know their rights and things are moving so fast, they're pressuring you to a settlement so you don't have time to read your document," Betancourt said.
Buried within the fine print are high interest rates, credit insurance, prepayment penalties and balloon payments, all designed to drive up the consumer's debt and wipe out his or her wallet.
The biggest warning sign is the fact that predatory lenders call you before you call them.
"You know they're coming to you to get the loan. Do you really need that loan or were you just as happy before?" Sprunger said.
According to credit counselors and consumer advocates, just about every major lending institution in the country has a predatory lending operation.
There are no federal laws against predatory lending. The banking industry said such laws hurt legitimate lenders.
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