Homebuyers with impaired or nonexistent credit histories often turn to subprime loans despite the higher interest that comes with them. According to Dotzour, many are about to discover that their "American dream" has turned into a nightmare.
Here is how the scam works. The homebuyer gets behind on mortgage payments. The predatory lender offers a "loan to get caught up" on the delinquent mortgage payments. In exchange for the rescue, the homeowner signs over the title to the predator, who promises that the homebuyer may remain in the home while paying rent. The predator then sells the house to someone else, and the original homeowner gets an eviction notice.
About a dozen states have passed laws designed to deter rescue loan fraud, but Texas is not one of them.
"The scam is called a loan, but it is not," says Dotzour. "It really is a buy-out with a leaseback."