FTC Consumer Alert
Federal Trade Commission Bureau of Consumer Protection Division of Consumer & Business Education
Avoiding Home Equity Scams
Washington, DC — You could lose your home and your money if you borrow from unscrupulous
lenders who offer you a high-cost loan based on the equity you have in your home. Certain lenders
target homeowners who are elderly or who have low incomes or credit problems — and then try to
take advantage of them by using deceptive practices. The Federal Trade Commission, the nation’s
consumer protection agency, cautions all homeowners to be on the lookout for:
• Loan Flipping: The lender encourages you to repeatedly refinance the loan and often, to
borrow more money. Each time you refinance, you pay additional fees and interest points.
That only serves to increase your debt.
• Insurance Packing: The lender adds credit insurance, or other insurance products, to your
loan, which you may not need.
• Bait and Switch: The lender offers one set of loan terms when you apply, then pressures you
to accept higher charges when you sign to complete the transaction.
• Equity Stripping: The lender gives you a loan, based on the equity in your home, not on your
ability to repay based on your income. If you can’t make the payments, you could end up
losing your home.
• Non-traditional Products: Many lenders offer loans in which the minimum payment does not
cover the principal and interest due, causing your loan balance, and eventually, your monthly
payments to increase. Also, many of these loans have variable interest rates, causing your
monthly payment to increase further if the interest rate rises.
• Deceptive Loan Servicing: The lender doesn’t provide you with accurate or complete account
statements and payoff figures. That makes it almost impossible for you to determine how much
you have paid or how much you owe. You may pay more than you owe.
Some of these practices violate federal credit laws dealing with disclosures about loan terms;
discrimination based o