The mortgage industry is synonymous with fraud. I remember the first day I started work as an Account Executive my boss told our training class just that. It was meant to be a warning, and it proved to be a very valid one.
I’ve seen all types of scams and fraud carried out by brokers, borrowers, and even co-workers, and it occurred to me that I hadn’t mentioned anything about mortgage fraud or mortgage scams beyond my predatory lending page.
Mortgage fraud is rampant, and really needs to be addressed. Everyone involved in the mortgage industry, from the borrower to the mortgage lender has been a part of a mortgage scam. Even big name lenders have been accused of ripping off consumers. Companies like Ameriquest, Countrywide, and Money Tree, to name but three.
I had a buddy that worked at Ameriquest and the mortgage points they were charging on loans were ridiculous. Usually something around 6% (and up) of the loan amount, which is a huge hit in my opinion. While this may not be mortgage fraud, or a scam, to be it is dishonest and high-cost lending, which should be deemed unlawful.
Lenders should be restricted to the amount they can charge a borrower, especially when lenders prey on low-income, bad credit borrowers to begin with. It’s funny that the more trouble you have with debt, the more you’ll get taken advantage of, mainly because you have little other choice if you want to keep your home and avoid foreclosure.
While this may not be clearly defined at predatory mortgage lending, it’s definitely done in bad faith, and should be regulated further by the government. There needs to be a cap to what major nationwide lenders can charge a potential homeowner.
And high-cost lending goes beyond the lender itself. It extends to brokers and loan officers that act as a liaison between the homeowner and the lender. Many of these representatives are the ones taking advantage of the opportunities to charge exorbitant amounts of money as deemed appropriate by the lender.
And the scary thing is that lenders entice brokers and loan officers with higher incentives on high-risk loans that the lender can sell-off to investors at a higher yield. Usually the negative amortization loans, also known as pick-a-pay loans. And the one who ends up paying a big price are the borrowers.
There are a number or mortgage scams out there. Let’s look at a few:
These schemes involve an offer that is presented to the borrower early-on as a means to entice, but later once the borrower has signed, the terms of the deal change. Essentially the borrower jumps on a great deal, and ends up with a terrible one. Negative amortization loans can fall under this category as they present borrowers with a great introductory low rate, but before long the interest rate may become unmanageable for many borrowers.
Loan flipping refers to the practice of constantly refinancing a mortgage, often times when it is unnecessary, or offers little to no benefit. A broker, bank, or loan officer may encourage a homeowner to refinance their loan simply to collect the associated fees and commission, saddling the homeowner with more and more unneeded debt.
Loan packing is the act of adding overages and other unnecessary or high closing costs to your loan. It’s similar to getting your car worked on by a mechanic and getting hit with a ton of random charges that make little sense. Basically a broker or lender will add fees or encourage you to buy into programs that aren’t necessary, and simply make your loan more expensive.
Mortgage Servicing Scams:
After closing your loan you may be told you owe certain fees, or end up with different terms than those you agreed upon. Mortgage servicing scams usually involve the lender who will discourage homeowners to refinance with a different lender, or simply tell them they aren’t able to do so. The borrower will feel trapped with a certain bank or lender thanks to these conniving plans.
Loan Modification Scams:
Ever since loan modification progams became widespread, scammers have surfaced, looking to take advantage of already debt-stricken homeowners. These types of scams usually require that homeowners provide an upfront fee in order to get a loan modification. Many of these may be unnecessary, as homeowners are able to receive comparable assistance free of charge via housing counseling agencies and similar outfits.
Equity stripping is another mortgage scam where a bank or lender will encourage a homeowner to take cash-out of their home time after time until most of the equity in their home is stripped away. And once the homeowner is stuck with a huge mortgage they can’t afford, they may foreclose and give their house up to the bank.
These practices can easily fall under the categories of mortgage fraud or mortgage scams. While they may be legal in some cases, they are usually done in bad faith and for the monetary reward only.
The job of any bank, lender, broker, or salesperson is to assist a homeowner or potential homeowner, and do so with honesty and in good faith, as outlined in Real Estate Law. The sad thing is that major corporations are setting a bad example for anyone who sets out to work for or with them.
Mortgage fraud can also hurt banks and lenders, if fraudulent brokers or borrowers, or both work together to slip sketchy deals through the cracks.