Avoiding mortgage fraud

This article is the third in a five-part series on home mortgages written in collaboration with loan officer Peggy Ryan.

by AUDRA OTTO

In most cases, loan providers possess much more knowledge about the lending process and the legal system than do borrowers, putting borrowers at a significant disadvantage and risk. For this reason, mortgage shoppers need to know how to protect themselves and which types of promises and arrangements to be wary of. Unethical mortgage lending practices are so rampant and various, that cataloguing the ways borrowers are deceived and swindled would be almost impossible. It can be helpful, however, to be aware of common marketing tactics used by fraudulent lenders, as well as some of the most commonly-run scams.
Here are descriptions of some frequently-used practices and schemes:

Low-balling
To lure in homebuyers, some lenders advertise low-ball prices which they have no intention of honoring. Listen to your common sense: If it sounds too good to be true, it probably is. Don’t respond to ads that guarantee a price a half point or more below the lowest price offered by anyone else.

Lies of omission
When obtaining a mortgage loan, brokers and lenders may fail to mention certain fees until you are too far along in the process to terminate the transaction without penalty charges. To protect yourself, require your broker or lender to provide a written list of all fees you are to pay, including known payments to third parties for services such as credit reports and appraisals.

Misdirection
Predatory lenders often mislead borrowers during the mortgage loan application process by concentrating on the mortgage rate rather than the cost of the loan. Do not focus solely on the rate of your loan. The APR listed on the Good Faith Estimate is simply a tool for the consumer to compare loan costs—this APR is not guaranteed to you. Look carefully at the costs and terms of the loan (fixed or adjustable).

Misinformation about the Good Faith Estimate
Borrowers are often confused or tricked by the Good Faith Estimate (GFE) and the Truth in Lending disclosure statement (TIL), which the government requires a mortgage lender to give you. The GFE—which gives the borrower the current interest rate—and the TIL—which gives the APR—are intended to give the borrower the information needed to shop around for a loan effectively. However, the interest rate and APR given are valid only for the day the document is generated, a fact that many borrowers are not told. Since the market is volatile, the GFE you are given may not apply later. You cannot depend on quoted rates and points unless you have written confirmation from the lender that the terms have been LOCKED.

“No-cost” loans
Loans with high rates for which lenders will pay points are sometimes advertised as “no-cost” loans, which they are not. They are zero-point loans, but there may be substantial fees of other types. Look closely at the annual percentage rate. On a true no-cost loan, the APR should be the same as the interest rate. If the APR is significantly higher, this is an indication that there are substantial hidden fees.

Interim mortgage refinance ploy
Any interim mortgage refinance plan designed to save you a prepayment penalty is a scam. While you do not pay any money up front, you forgo any monetary benefit from the interim loan because you merely borrow an amount equal to the penalty, which you must later pay back with interest. The interim loan does not allow you to avoid the prepayment penalty, and therefore, all costs associated with the loan are eventually paid out of your pocket.

Foreclosure Rescue
Foreclosure rescue programs target homeowners behind on mortgage payments, offering services such as fast cash and equity funding without a credit check. These programs falsely lead you to believe that you can prevent foreclosure and continue living in your home by transferring the title to your property to the lender for a year or two, during which time you can simply pay rent. Once the property title has been transferred, the company secretly sells your home to outside investors, stripping out the home equity and leaving you on the verge of eviction.

Mortgage elimination scam
Mortgage elimination programs use questionably legal documents to persuade you that there are legal loopholes that allow borrowers to eliminate their mortgage payments. The program advises you to hire—at a substantial cost—a team of individuals dedicated to absolving your mortgage debt. Essentially, these programs charge you for explaining how to accelerate the repayment of your mortgage. This set-up is thoroughly deceitful, as that information can be obtained for free without the help of their “experts” and “legal teams.”

Tips to remember:
• Make sure to get information in writing, including fees, interest rates, APRs, and any guarantees made to you. Request photocopies of any and all documents you sign or are shown.
• Read all items carefully before making a commitment or signing a document. If you are unclear on the meaning of a document or feel uncomfortable with the situation, get a second opinion from a lawyer or another knowledgeable person whom you trust before signing anything.
• Keep careful records of all of your payments, including billing statements and cancelled checks.
• Challenge any charge you think is inaccurate.