Tips on how to avoid predatory lenders

Mortgage provider Merit Financial, which amassed several dozen consumer complaints before shutting down in May, was never officially identified as predatory. However, many lenders are.

Here's how to spot them, according to the Center for Responsible Lending, a nonprofit, nonpartisan organization dedicated to eliminating abusive financial practices.

Predatory loans generally have one or more of the following characteristics:

• Requiring a large payoff, called a balloon payment, within a few years of acquiring the loan.

• Requiring a higher interest rate than otherwise available to the same borrower elsewhere.

• Putting borrowers at risk by getting them into higher monthly payments than they can afford.

• Penalizing a borrower for retiring the loan early, making it more difficult for the borrower to refinance to get a lower interest rate.

The Washington State Department of Financial Institutions offers these tips on how to avoid predatory lenders:

• Be wary of loans offered through door-to-door sales or telemarketing solicitations.

• Be wary of lenders or brokers who guarantee loan approval regardless of your credit history or rating, and suspicious of anyone who pressures you.

• Shop around; don't assume you can't qualify for a cheaper loan from a traditional lender.

• Oral promises offer no protection, so get everything in writing.

• Watch for hidden terms such as prepayment penalties and balloon payments.

• Check out the lender with the state Department of Financial Institutions, which maintains a licensee database on its Web site: www.dfi.wa.gov.