Predatory lending refers to the practice of unscrupulous lenders, enticing borrowers to enter into "unsafe" or "unsound" secured loans for inappropriate purposes. A classic bait-and-switch method was used by Countrywide Financial, advertising low interest rates for home refinancing. Such loans were written into extensively detailed contracts, and swapped for more expensive loan products on the day of closing. Whereas the advertisement might state that 1% or 1.5% interest would be charged, the consumer would be put into an adjustable rate mortgage (ARM) in which the interest charged would be greater than the amount of interest paid. This created negative amortization, which the credit consumer might not notice until long after the loan transaction had been consummated. COUNT 5
QSN1 What is the name for lending that entices borrowers to enter into unsafe secured loans? ANS1 Predatory lending QSN2 What company used a classic bait-and-switch method by advertising low interest rates? ANS2 Countrywide Financial QSN3 Which type loan would the consumer be put into instead of the 1% or 1.5% interest rate loan as advertised? ANS3 adjustable rate mortgage (ARM) QSN4 What was created when the interest charged was greater than the amount of interest paid? ANS4 negative amortization QSN5 What type predatory lending method did Countrywide Financial use? ANS5 classic bait-and-switch