Borrower Beware

You would like to think that with all the licensing and tougher times, that all the mortgage riff-raff have gone back to selling what ever it was they did before…it’s not true…not yet.   In fact, it was recently announced that during the first quarter of this year, there’s a record amount of mortgage fraud.  At first, I was surprised to hear this but after you think about it, it sadly makes sense.  With less business, some mortgage originators become more desperate and make poor choices…the same holds true for borrowers who "need" a mortgage but don’t quite fit today’s guidelines.  They’re both willing to do "what ever" to get a mortgage loan.

Here are a few actual scenarios I’ve come across recently that you may want to look out for.

Inflated home values.  Recently a mortgage banker confidently told a borrower looking to refinance their home that it was worth a higher amount than what it actually was.  Most mortgage rates are based on loan to value, so a rate at 80% LTV is better than one at 81% or higher.   Mortgage originators do not know the value of your home until it has been appraised.  We have some tools available, but they are not guaranteed.   Watch out for originators who state your home is worth more (even if you really want to believe them).  You may want to ask them how they arrived at your home value.

Non approved FHA lenders.  FHA mortgage loans are hot.  In fact, a majority of my loans are currently FHA over conventional.   Ask your mortgage originator if they are approved to provide FHA financing.  A big clue if they are not is if they are charging you an origination AND a discount point (often used to pay a lender to fund the FHA loan for the unapproved lender)–this is a RESPA violation (illegal).   Inquire on how many FHA mortgage loans the mortgage originator has personally closed and how long they’ve been providing FHA financing.   You don’t want to get wrapped up in a transaction only to learn your lender can’t complete the loan. 

Another predatory trend that I’m spotting are loan originators who collect a fee for assisting a home owner in need with a loan modification.   If you need help with your mortgage, PLEASE contact a HUD approved counselor or Hope Now before your pay a mortgage originator to refer you to an attorney.

Last, this isn’t really predatory in my book, but definitely something for borrowers to keep in mind: if a mortgage originator does not have a competitive product available to you, such as a second mortgage/HELOC or FHA loans; they don’t have to tell you.   You may seek out a mortgage originator to provide a certain product and instead of them saying "I don’t have a competitive HELOC right now, you might want to check out XYZ"; they may say, "lets look at your first mortgage and do a cash out refi".  Don’t get me wrong, a cash out refinance may actually make more sense than a second mortgage–just don’t do one because the LO is trying to make a paycheck.   I’ve recently referred a past client to check out a credit union for a small second mortgage…I wish I could do the loan and keep my client contact–however, I simply  don’t have the product right now and I know their first mortgage rate is too low to refinance.   

It never hurts to get a second (or third) opinion if what you’re hearing from your loan originator doesn’t seem to make sense. 

There may be a solid reason if something doesn’t pass the "smell test".  Trust your instincts.