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http://www.mtgprofessor.com/glossary.htm Sub-prime borrower
A borrower with poor credit, who can borrow only from sub-prime lenders who specialize in dealing with borrowers who have poor credit. Such borrowers pay more than prime borrowers, and are sometimes taken advantage of. Not all borrowers who deal with sub-prime lenders, however, are sub-prime borrowers. Some could obtain loans from mainstream lenders if they properly shop the market. Read
Should Mortgage Borrowers With Poor Credit Shop? Sub-prime lender
A lender who specializes in lending to sub-prime borrowers. See
What Is a Sub-Prime Mortgage Lender? Sub-prime market The network of sub-prime lenders, mortgage brokers, warehouse lenders and investment bankers who make possible the delivery of loans to sub-prime borrowers. See Upheaval in the Sub-Prime Market.
Mortgage lending is predatory when it has a significant adverse impact on a borrower’s life, either because the loan is inappropriate to the borrower’s situation, is grossly over-priced, or both. Most predatory lending is a perversion of a legitimate activity, which is what makes it so difficult to develop remedies that don’t do more harm than good. Counseling directed at potential victims has no capacity for harm, but people can't be compelled to seek counsel, or to listen when they receive it.
Predatory Lenders Prey on Borrower Weakness
If there were no prey, there would be no predators.
Predatory lenders take advantage of borrower weaknesses, which are discussed in more detail in
Avoiding Mortgage Predators. These include ignorance about how mortgages work, especially the more complicated ones. Befuddling the borrower is part of the predator’s stock in trade.
Predatory lenders take advantage of borrower shortsightedness. This includes "payment myopia", a common tendency to focus on initial payments, ignoring the possibility of higher future payments. The promise of low initial payments is a principal weapon in the predator’s arsenal.
Borrowers who are payment myopic also tend to be "balance blind".
They ignore how much they will owe down the road, which makes it easy for predators to load exorbitant upfront fees into the loan balance. Payment myopic/balance blind borrowers are also the perfect foil for negative amortization ARMs that offer very low initial payments that don’t cover the interest, combined with a rising loan balance.
Borrowers are often "cash dazzled", in that the prospect of putting free cash in their pocket makes them oblivious to how much home equity the cash is costing them. Such borrowers are among the most tempting of all prey to a predator.
Predatory lending should be distinguished from the minor imperfections that pervade the market. A very large proportion of mortgage borrowers pay more for their loans than they would have if they had been able to shop the market effectively. (See
What Is an Overage?). In most cases, however, the over-charge is small and life goes on.
In cases of predatory lending, over-charges are offensively large, often associated with steering into inappropriate mortgage types, and sometimes associated with refinances that make the borrower poorer. The result is a significant adverse impact on the borrower’s life.
Here is an incomplete list of some widespread predatory practices.
Cash-Out Refinances to Cash-Dazzled Borrowers
Borrowers with significant equity in their homes, meaning that their homes are worth more than the debts secured by the homes, are potential targets for predators. Their aim is to shift as much of that equity as possible into their pockets.
In
The Cash-Out Refinance Scam I give an example of equity grabbing associated with cash-out refinancing -- refinancing for an amount larger than the balance on the old mortgage. In the example, a borrower with significant equity in his home refinances a zero interest-rate loan into a 14% loan, with heavy fees that are included in the new loan balance. The lender talked the borrower into this by putting cash in the borrower's pocket. But the borrower was saddled with a larger repayment obligation that he couldn't meet, resulting in default.
http://www.mtgprofessor.com/A%20-%20...ry_lending.htm 
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