Prevent Mortgage Fraud
Becoming a homeowner can be one of the most exciting moments in a family?s lifetime. One of the keys to success is getting an affordable home loan with fair terms and reasonable costs. Consumers should know that some loans are riskier than others. Simply being aware of the predatory lending problem is the first step in protecting your investment.
According to Fannie Mae, mortgage fraud has increased five-fold in the past 10 years. Unsuspecting home buyers who aren?t familiar with an area?s property values can be victimized by scam artists who have bought a property at a bargain-basement price and have made minor cosmetic changes to sell the home for much more than it?s worth. People with blemished credit can also fall prey to unscrupulous individuals who pose as real estate agents or mortgage brokers, offering promises of a new home and mortgage qualification. These buyers end up assuming a loan they can?t afford, and the lender forecloses.
The majority of predatory lending occurs within the ?subprime market,? oftentimes involving people with poor credit histories and high debt. Although the availability of these loans can help lower-income families achieve homeownership, the problem lies with those lenders that take advantage of vulnerable buyers.
Here are some warning signs of a predatory loan from the consumer brochure published by the National Association of REALTORS?? brochure ?Shopping for a Mortgage? Do Your Homework First: How to Avoid Predatory Lending.?
- Sounds too easy. ?Guaranteed approval? or ?no income verification? regardless of borrower?s current employment, credit history, and assets. These claims indicate the lender doesn?t care about whether you can afford to make the payments over the long haul.
- Excessive fees. Higher lender and/or mortgage broker fees than are typical in your market. Because these costs can be financed as part of the loan, they are easy to disguise or downplay. On competitive loans, fees are negotiable. It is common for home buyers to pay only one percent of the loan amount for prime loans. By contrast, a typical predatory loan may cost five percent or more.
- Large future costs. High-risk adjustable rate mortgages where the payment rises a lot after a short introductory period are seldom appropriate for families who already have had problems repaying other loans. Home buyers also should avoid a large single ?balloon? payment (a lump sum due at the end of the loan?s term).
- Closing delays. The lender deliberately delays closing so the commitment on a reasonably-priced loan expires.
- Over-valued property. Inflated appraisals that allow excessive fees to be included in the loan and result in the borrower owing more to the bank than the home is worth.
- Barriers to refinancing. Prepayment penalties that make it hard for a borrower to refinance in order to pay off a high-cost loan by taking advantage of a low-cost loan.
- No down payment loans. These loans may be split into two mortgages, with one having a much higher cost. Home buyers should be sure they can afford the payments.
- Unethical document management. An ethical lender or broker will always require you to sign key loan papers, and they will never ask you to sign a document dated before the date you sign it.
Copyright NATIONAL ASSOCIATION OF REALTORS?, used with permission.
Consumers can protect themselves by checking out lenders with the Better Business Bureau, educating themselves on the financial risks involved and taking the time to carefully shop for a loan.
First-time homebuyers in Illinois may qualify for low-cost loans through the Partnership for HomeOwnership?s Rural Initiative, Quincy Initiative and HomePower Mortgage Assistance programs. Learn more at www.pfho.org.