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Home > Banking Division > Home Owners Security Act of 2002
Home Owners Security Act of 2002
What Lenders Should Know!
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 What is Predatory Lending?


"Predatory lending," has become shorthand for describing a variety of lending practices that may be disadvantageous to borrowers. Abusive or predatory lending - whether undertaken by creditors, mortgage brokers or home improvement contractors - may involve fraud or deception, manipulating borrowers through aggressive sales tactics or taking unfair advantage of a borrower's lack of understanding about loan terms. These practices occur most frequently in the subprime lending market and target lower-income and minority borrowers.

The term "predatory lending" covers a potentially broad range of behavior and does not lend itself to a concise or comprehensive definition. However, predatory lending typically 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 ("asset-based lending")
  • inducing a borrower to refinance a loan repeatedly in order to charge high points and fees each time the loan is refinanced ("loan flipping")
  • engaging in fraud or deception to conceal the true nature of the loan obligation from an unsuspecting or unsophisticated borrower

 2003 Update


In light of the importance of the issues and concerns that precipitated the Department's request for advice from the Attorney General regarding the New Jersey Home Ownership Security Act, N.J.S.A. 46:10B-22 et seq. and the general interest in the advice received, the Department has elected to waive its attorney-client privilege and publicly release this advice in this particular instance. Please be advised, however, that releases of such advice are exceptions, done only in extraordinary cases. Consequently, the posting of this advice should not be considered as indicative of a pattern or practice of the Department.

It is also necessary that readers of the advice understand that the role of the Division of Law in this matter is to advise the Department of Banking and Insurance, not to answer questions regarding the advice from the industry or the general public. Therefore, please submit all inquiries regarding the advice and the Act to the Department of Banking and Insurance through any of the many available channels of communication, and not to the Division of Law.

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