NEW YORK (CNNfn) - Eunice Kroulik never knew what hit her.
The 68-year-old Minneapolis resident, a widow who paid her mortgage bills on time, was contacted late last year by a loan officer pushing refinancing packages with 7 percent introductory rates.
He didn't tell her that by signing on she'd be paying $7,000 in upfront processing fees or that she'd be giving up her existing 7.75 percent fixed rate for a variable rate that could climb to 13.75 percent. He also failed to mention that, under terms of the new loan, her $37,000 mortgage would climb to $59,000.
Kroulik, who left school after the second grade due to epileptic seizures, could not understand the complex documents before her and ultimately signed her name on the dotted line.
"They called me up on the phone and I kept saying 'No, thank you,' but they wouldn't listen to me," she recalls. "They sent someone out anyway. I can't read and I tried to tell them that."
For now, Kroulik is managing to make her payments. But that could change. If her rates rise to the maximum, she'll be stuck paying $750 in mortgage payments on the $850 she receives each month from Social Security.
"You try to be nice to people and they take you for something," she said. "I don't think that's right."
Predators and prey
Neither does the Association of Community Organizations for Reform Now (ACORN), a citizens action group headed to Capitol Hill next week to lobby for new legislation that would provide greater consumer protection against predatory lenders.
The group also is asking lawmakers to tighten up existing legislation, the 1994 Home Ownership Equity Protection Act, or HOPEA.  According to ACORN representatives, several members of Congress already have agreed to introduce such a bill.
"There are a number of companies out there that really feel they can get away with anything and that nobody is watching them," said ACORN researcher Jordan Ash. "We want the government to punish these companies, which are engaged in illegal sales practices, and punish them to whatever extent the law will allow, either by revoking their licenses or by increasing their fines."
Predatory lending refers to banks and other lenders that make a disproportionate number of high-cost loans to the elderly, and to residents of low-income and minority neighborhoods. It happens when mortgage companies gouge their customers with exorbitant fees and rates, intentionally charging them more than they can afford.
In most cases, the loans come with hefty prepayment penalties -- meaning the borrower can't turn their loan over to another bank without coughing up thousands of dollars in penalties, on top of the refinancing charges they'd pay to the new lender.
The idea behind it is that the consumer will either have to pay those fees to get out of the loan, continually refinance and pay the processing fees to keep rates reasonable on their existing loan, or default on their mortgage and lose their home. The bank wins no matter what.
"The lender either gets the fees or the equity in the house," Ash said.
The subprime sector
According to industry data, the practice occurs most often in the subprime market.
Subprime mortgage loans, sometimes classified as class "B," "C," or "D," offer borrowers with low incomes or a poor credit history access to home financing. They usually come with exceptionally high interest rates and fees, not to mention repayment terms that leave the borrower with a large "balloon" payment that must be paid in full to satisfy the debt.
By contrast, conventional mortgage loans, or "A" loans, generally have lower interest rates and fees and do not require a balloon payment.
The Housing and Urban Development Department reports the number of subprime purchase and refinance loans has grown more than 850 percent to 997,000 loans in 1998 from 103,693 loans in 1993. During that period, all other refinance and purchase loans have climbed just 12 percent.
According to ACORN, the problem of predatory lending has climbed alongside industry growth.
"Predatory lenders have robbed hundreds of thousands of current homeowners of their hard-earned equity and taken advantage of countless others who desire to become homeowners," the group said in a statement.
In North Carolina, alone, where the most in-depth research on predatory lending practices has been conducted, an estimated 50,000 families have been victimized. Elderly homeowners, who have often built up the most home equity, but live on very limited incomes, are particularly vulnerable.
ACORN has picketed and protested in 16 cities against Citigroup (C: Research, Estimates), the nation's largest financial services company. The group alleges Citigroup's subsidiaries, CitiFinancial and IMC, engage in predatory lending.
Citigroup spokeswoman Maria Mendler , however, said ACORN "has made claims without knowing all the facts." She said CitiFinancial, formerly known as Commercial Credit, has financial advisors all over the country helping customers map out on debt consolidation and refinancing plans.
"We make our loans based on credit scores and the customer's ability to repay that loan, not based on the equity (in their home)," she said.
Another company ACORN claims is actively involved in predatory lending is Ameriquest Mortgage Company, the largest retail subprime lender in the country. It found the company targets its more costly loans to minority, female and elderly borrowers, making a six times greater percentage of its loans to African American women than other lenders.
So far, the group has filed complaints with several state attorneys general and the Federal Trade Commission over what it believes to be "bait and switch" sales pitches. ACORN claims Ameriquest loan officers promise borrowers a low, fixed-interest rate or low monthly payments, but then give them an adjustable rate several points higher or a monthly payment that is hundreds of dollars more, as in the case with Kroulik.
In response, Ameriquest said it provides loans to people who would otherwise be turned away by traditional lenders. It also notes that in the last three years, the company has invested significantly in educational outreach including its support for the formation of the Consumer Mortgage Education Consortium.
"We specialize in offer a competitive product to historically under-served markets," the company said in a statement. "We do not discriminate in our lending practices."
How to defend yourself
If you are approached by high-pressure loan officers, or you fear you've fallen prey to predatory lenders, the experts say there are several things you can do.
"If you feel you've been taken advantage of, then you can talk to your state attorney general," said ACORN's Chris Saffert. "A lot of states, including Minnesota, New York and Massachusetts, are  beginning to crack down on these lenders. You can also usually talk to your state banking or commerce department supervising mortgage companies."
To prevent predatory lenders from taking advantage of you in the first place, the New York State Banking Department offers these helpful tips:
- Make sure your lender is licensed and find out if any consumer complaints have been filed against the company by checking with your local Better Business Bureau or consumer affairs department.
- Next, make sure you can afford the loan. Just because you qualify doesn't mean you can afford the monthly payments.
- Look carefully through the entire loan package and ask for an explanation of all fees, charges, terms and conditions. Make sure rates and fees are competitive and fair.
- Shop around. Find out what other lenders are charging and compare.
"I think the best defense is really to engage in thorough comparison shopping," said Steve O'Connor, senior director of residential finance for the Mortgage Bankers Association of America. "You can do that by reading the ads in the newspaper real estate section or by going online. The Internet is an effective tool for doing that now."
- Get all "promises" put in writing. Have a company representative date and sign the document and keep a record of it on file.
- Get pre-loan counseling from a credit counseling service. Credit Counseling Centers of America is a non-profit group offering free advice.
- Call a local bar association or other local legal services organization, if you run into trouble. They can help you obtain affordable counsel and advice.
"For anyone who is able to, make sure you read over what you're signing," Kroulik advises. "I never sign anything anymore without bringing someone with me who can help." 
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