Predatory lending reached epidemic proportions within the past decade, as ongoing investigations into the current mortgage crisis reveal. To protect yourself from unscrupulous lenders, it's important that you arm yourself with updated knowledge and insightful information.

Predatory lenders, many of whom use sophisticated strategies to exploit consumers, seem to have gone mainstream within the past few years. This has been bad news for millions of borrowers. Countrywide Mortgage, for instance, allegedly gave its sales personnel added financial incentives and high pressure telemarketing scripts to encourage them to market the most expensive loans to customers-regardless of the needs of those prospects.

Don't be a victim

Predatory practices include attempts by mortgage brokers to sell loans with excessive fees and higher rates, which can add as much as $20,000 to a $200,000 loan. Most of that extra money goes straight into the pocket of the broker. Some lenders also load loans with various up-front charges and additional "junk fees" to pad the closing costs.

The news is filled with horrific stories, like that of a mortgage broker in North Carolina, who recently arranged a $48,000 home loan for a borrower that included a $4,352 origination fee, $1,089 in points, a $175 "underwriting" fee, a $200 "processing" fee, and a $175 "document prep" fee, in addition to standard closing costs. Such fees are typically non-refundable, even if you refinance. To add insult to injury, the fees charged in that particular case (which was aggressively pursued by the state's Attorney General), were rolled into the principal balance of the loan at an extraordinarily high interest rate.

Other products that should raise a red flag and cause you to scrutinize the lender include any kind of mortgage that requires only monthly repayment of interest, not principal, and results in a huge balloon payment. The final payment could easily be almost as large as the original loan amount, despite the fact that you've made monthly payments for decades.

Equity stripping and friends

"Equity stripping" is another scheme to defraud homeowners. By offering a home equity loan that the borrower cannot reasonably repay-because of troublesome terms or rates that suddenly spike-the lender can intentionally get the homeowner into trouble that leads to foreclosure. By making these kinds of loans to people with significant accumulated equity, the lender is able to acquire property through foreclosure, and automatically gain lucrative equity or immediate resale value. Encouragement to repeatedly refinance for small and insignificant savings, but with large refinancing fees, is another telltale sign. And one of the most common scams is "insurance packing," which means that the lender adds unwanted and grossly overpriced credit life or disability insurance to the loan.

Study the terms of any mortgage loan-and the tactics used to market it-and you'll be better protected and less of a target for mortgage industry con men. If you suspect predatory lending, contact your Attorney General's office. The ploys used to sell you loans, and the questionable products involved, could be not only unethical, but also illegal.