Ideally, responsible, risk-based subprime lenders provide access to credit for prospective home owners with poor credit scores. However, lenders are considered predatory when their practices, although legal, are not in the best interest of the borrowers.
In a free market, anything can happen. But if something seems too good to be true, it may be fraud. Not recognizing the signs of fraud can kill a sale and embroil you and your client in legal action if a fraudulent sale closes.
In its white paper, The Detection, Investigation, and Deterrence of Mortgage Loan Fraud Involving Third Parties, the Federal Financial Institutions Examination Council of Arlington, Va., suggests these red flags as indicators that fraud may be taking place.