Confessions of a former Predatory Lender


I recently received an email from a Loan Originator who wanted some advice on how to develop a "referral based business".   Having a referral based business means that you have provided such a high level of service to your clients that they feel compelled or at least comfortable in recommending you to the people they care about.   My business is dependent upon referrals from my clients and professional relationships.

I have mixed emotions reading this gentleman’s email.   I’m angry that consumers could be prey to someone who is not properly trained and suffer by possibly losing their home or at the very least thousands of dollars.   I almost feel bad for this person who really seems to have had no idea (he seemed almost brainwashed) at what he was doing to consumers with his former employer.   

""I have been in the mortgage industry for nearly 2 years. So I guess in the scheme of things I am relatively new …or maybe not the way that things are currently going. Anyway, I started at a mortgage company that I will not mention here for fear of being sued. It was an extreme predatory lender. I didn’t realize then how much so; I was given 2 weeks classroom training and thrown on the floor to sell. They taught me enough to sell the mortgage but not to properly qualify borrowers, so the rates, fees, etc. always changed.

I really knew nothing of the mortgage industry at the time. That particular company really keep the LO’s separate from the process. You sell the file, pass it off to the processor, and sell another one. Also act as a liaison between the borrower and the company. I was required to call them up every day to let them know that everything was fine then take the fall when the mortgage program completely changed.

The company that I am speaking of really had me sold on them for a while. I really had company pride and truly believed that my rates, programs, and ease of use were superior to any other mortgage company out there. I slowly began to realize that none of this was true. I studied relentlessly for several months on my own time. The more I learned about the industry the more I realized that the company that I was working for was horrible. I began to lose sleep over the fact that all of the “wonderful” mortgage loan products that I had been providing my clients were really the worst deals they could’ve gotten.

Needless to say I left that company when I realized what was really going on…."

When you are considering a mortgage or mortgage advice, please do select your Mortgage Professional carefully.   Don’t let them select you by "cold calls" or deceiving junk mail.   

Hat tip to Tim at Rain City Guide for the photo.  We’re not sure if he’s either a victim of a bad mortgage or if he’s an unemployed subprime Loan Originator.   What do you think?

Update:  Don’t miss America’s Mortgage Broker, Brian Brady’s response to this post:  The Difference Between Right and Wrong.

This is sure to trigger your anger

I just received this email:

Dear Mortgage Brokers,

This notice is to inform you that our 24 Hour Mortgage Trigger Database has recently been updated. This means that we are able to offer you data from either:

Equifax, Experian or Trans Union

Our leads come with:

FICO, Name, Address, Phone Number, Amount of Aggregated Revolving Debt, Mortgage Loan Amount, Lender Name, Loan to Value, Monthly Payment on Mortgage – Credit Cards – Automobile

We can target all 50 states by: County, Zipcode, Zipcode Radius, City & Major Metropolitan Area.

Response within 24 hours is required to guarantee this price.

Give me a call and I can have you setup to get leads the same day."

When  you visit their website (I’m not promoting here), they offer:

"… specific credit information on consumers based on actual credit records. This database covers 50 states and over 300 million people. From this database, selections can be made on credit score, amount of debt, late payments, mortgage type and monthly payments. This data is primarily used to identify individuals based on their current credit situation and purchase indicators."

If President Bush really wants to stop predatory lending , or as he said last week regarding Loan Originators “if you’ve been cheatin’ somebody, we’re gonna find you.”   Perhaps he could start by not allowing the major credit bureaus from reselling the (currently not so) private information of consumers.   

In the meantime, I highly encourage you to write to your elected officials to tell them to stop "trigger lists".   There is NOTHING good about this practice.

More from the Junk Mortgage Mailbag


I feel it’s important to continue to share with you the junk we receive in the mail from mortgage companies with amazing offers.   Seems like the new trend is to go after people who may be facing foreclosures or who have adjustable rate mortgages.   

Let’s take a peak inside these great offers!   

The first one has red letters on the upper right corner stating:

"FINAL NOTICE OF RATE INCREASE".  The next line: "RE:  Mortgage Master Svc Corp.".

Wow.  Looks pretty official and they must know about us because we did get our mortgage at Mortgage Master (where I work).   Once you tear open this important looking notice, it appears to be a check from the "funding department" for $375,000.   That is our mortgage balance and we do have an ARM.    The letter states they have "reviewed our original mortgage loan" and that we "qualify for a Low Cost Refinance or a No Cost Refinance…your new rate could be 4.125% (APR 6.439%)".   

The second letter has big bold black says "FINAL NOTICE-Notice of Overpayment".   Yikes…we don’t to be overpaying anything!  This gem states that "according to their records, you may be making larger than required payments on your home loan" and is offering us a fixed rate for five years at 1.75% (APR 7.012%).  Huh?  I thought we were making the payment due according to our lender. 

The purple envelope really cracks me up.   It’s hand addressed on the front and the back of the envelope even has a little smiley sticker.   This must be from a dear friend.   This is not a mortgage offer, instead they say "We’ll buy your house…even if the stairs are missing".   It’s a two page letter with testimonials and reasons not to use a real estate agent…they’ll help you do everything no matter what condition your house is or how desperate you are to sell.  RUN!  I checked out there website and there is no information about this organization or more importantly, the people who are behind it.   Are they licensed?   Smells fishy to me.   Maybe it’s the smiley sticker.   If you need to sell your home and you don’t have a real estate agent to work with, please contact me and I’ll try to help you with a referral to one.

If someone needs to send mail (or do "cold calls") to strangers to stay in the mortgage business, it’s because they do not provide the level of service that would create referrals from their clients.   They treat their business/clients as "transactional" instead of "long term relationship".   If you’re working with someone who is "transactional", they’re only planning on working with you once; you probably won’t want to return to them for your next mortgage.   

I don’t appreciate scare tactics and I hope you don’t fall for their gimmicks.  Ask for referrals from people you respect and trust if you are in need of a mortgage or real estate professional (or read their blogs).

PS:  If you receive a misleading offer in the mail that does not disclose APR or that appears to be from the government (you know, the gold envelopes with an eagle on the outside usually sent around April so you think it’s a tax refund) and you’re in Washington State, please send it to me.   If it’s a violation, I’ll forward it to DFI.

Latest Telephone Scam

I often work from my home office.  For a while I was getting deluged with phone calls from people with foreign accents telling me that I had applied to obtain a mortgage from them!   I quit answering the phone when I don’t recognize the number or if the number is blocked.   The calls dwindled.

Here’s the new twist on the same scam…I’ve received a couple of these calls now.  The person says they’re from the “National Debt Center”.   They go on to say that they represent many of the credit card companies you have debts with (it’s not hard to name a few of the big players and get lucky with guessing a card you may actually have).    

Until this afternoon, the phone number was blocked…I just filed a complaint with the Do Not Call site.   We are on the DNC list and still get these obnoxious calls.   When I informed this caller that we’re on the DNC, she slammed the phone down.   Other times, this only seems to be a mental game to callers.   

They can sound pretty convincing…they’re crooks.  Don’t fall for it.  The area code from this caller was 113.   Look out.

Those Amazing Low Rate Offers to Refi Now in the Mail

Even at our home, we’re getting more and more amazing offers from lenders.  Recently one of my clients asked,

"We keep getting info in the mail from some odd place that says that we have a mortgage through Mortgage Masters and that they can reduce our house payment to $900.00 per month. We shred them every time we get them but now I am curious if it is true? It does not have the Mortgage Master logo on it, it just says that they know we have a mortgage balance of $266,000."

It’s amazing how much personal information that you would assume is private, is actually public.   Any lender or real estate agent can obtain a fine tuned list from a title insurance company or various other marketing companies for a fee.  It’s my opinion that if a Loan Originator has to use "cold marketing" (letters, post cards and phone calls to people they don’t know) to drum up business, it’s because they lack referral and/or repeat business from their past clients.  No one wants to work with them or their company again nor refer someone to them…therefore, they must buy leads and mail to strangers (you and me).

Many of these offers are suspect…if it seems too good to be true, it is.   Bait and switch tactics of offering low rates like 1% or skipping several months of your mortgage payment are hung out in order to have you call "Slick" at the mortgage company.   Often times, the ads will appear as if they are coming from the mortgage company you obtained your financing from (check the very small print at the bottom of the letter).   The gimmick marketing may even appear to be from a government agency or as if it’s a "special limited time offer".  Chances are, it’s a hoax.

As I mentioned at the beginning of this post, we are personally getting deluged with "amazing offers".   I think it’s because we have an adjustable rate mortgage.   And, the mortgage marketers know this…many of the pieces we receive state that and have emotional rich phrases such as "stabilize your monthly mortgage payment…it’s urgent to refinance now."   Our ARM is fixed for seven years.   We have five years left on it.  It’s not urgent for us to give up equity for closing cost to have a 30 year fixed mortgage at this time.

Another beauty, which I am going to send in to DFI to see if any actions will take place…came in a gold envelope from the "Department of Public Records" appearing as though it’s a check for $660,000.    When you open this piece (of crap…sorry, this bugs me) it claims that the "sponsored lender" is Mortgage Master Service Corporation.    I can assure you, this is not true.    It also offers us a 1% interest rate and that this loan will fund in 10 days.   This piece is from a Consumer Loan Lender.   They have different guidelines they abide by than Mortgage Bankers or Mortgage Brokers.   

The bottom line is that there are a plethora of mortgage marketers out there who are trying to take advantage of home owners fears of rates adjusting or debts…you name it.   Don’t fall for it.   If you need help with your mortgage or have any questions, contact a qualified Mortgage Professional.   

Hopefully you had a good experience with the person who helped you with your original financing…if not…contact someone you respect and trust for a referral to one.    What ever you do, don’t fall for misleading junk you receive in the mail.

UPDATE:  If you have misleading advertisements sent to your Washington State home, mail it to:

Enforcement Unit, Division of Consumer Services, DFI,  PO Box 41200, Olympia, WA 98504

Local Mortgage Fraud Exposed

Mpj031428300001 Last night I watched an investigative report on the local evening news about a loan originator who put the hard sell on two brothers to purchase 3 investment homes and now the brothers are having to sell their primary residence in order to try to make ends meet.   There was so much wrong to this story that it made my gut turn.

I’m glad that predatory loan originators are being exposed.   It’s truly unfortunate that for every one of these LOs, there’s an anxious, gullible borrower on the other end.   Here are just a few of the highlights from last nights story :

The LO grossly overstated the buyers income.   And according to the buyers, the signature on the loan application was not theirs.   Absolute fraud.

  1. The LO was the selling agent, loan originator and the seller (he transferred the property to a family member)…I’m assuming he was the listing agent, too? 
  2. The properties were horrible overpriced.   According to the report, the brothers bought a property for $605,000 and it’s only worth $400,000. 

The brothers state they were shocked at their new mortgage payments when they arrived.   Since the loan applications were forged, I’m assuming they had no idea what their payments would be.   

Simply googling the loan originators name shows that he has been banned recently from his former career as a stockbroker for "defrauding customers" and trying to "harass and intimidate" a securities investigator.

"He’s a great salesman, I’ll tell you that…and stupid me, and stupid us…for trusting someone with a silver tongue."

It is so important to carefully select the Mortgage Professional you will be working with.   This may not be an easy task, you’ll need to do some research.   The brothers in this story say that this loan originator is one of their friends!   

  1. Google the Loan Originators name.   What pops up from the search?
  2. Read the LOs blog.  You’d be surprised how you can get a "read" on a LO’s personality and lending style.
  3. Get referrals from your other people you respect.
  4. Get second opinions from other lenders or professionals (such as your CPA, CFP, etc.)

I also have an issue when selling agents are also the loan originator.   In my opinion, it’s too self serving and a green light for abuse.  The loan originator/real estate agent should only wear one hat during a transaction…not two.  This subject deserves a post on it’s own.   I wonder if this LO disclosed on the purchase and sale agreement the relationship to the seller?

If it seems too good to be true, it probably is.   Owning investment properties can be great.  I recommend dipping your toe into that pool slowly.   Jumping in with 3 homes (the brothers bought 2 condos and a house for investment) is a certain recipe for disaster when you do not have experience as a landlord.   Even if the LO was a decent lender, these were highly risky purchases. 

It will be interesting to see how this story unfolds.   My first post was about a local mortgage fraud case as well and I’m still waiting to see if this predatory loan originator was able to slither away.

DFI currently shows this LOs license as pending…which probably doesn’t indicate anything at this time since Loan Originators will not be able to take the test until June 1, 2007.   DFI is, however, in the process of background checks…so it will be interesting to follow this LOs career and to see if he will be able to continue working as Mortgage Broker or if he can find employment elsewhere in the lending industry that is not licensed by the State of Washington.

Loan Originator Leftovers


A few weeks ago, one of the Real Estate Agents I work with contacted me to review an estimated HUD-1 Settlement Statement.  She was the listing agent and was concerned that her seller was being taken advantage of by the Loan Originator.   In the purchase and sale agreement, the seller had agreed to pay "up to $10,000 towards allowable closing costs".    The origination fee on the estimated HUD…2%!

It appears to me that the loan originator bumped up their origination fee at the last minute when the $10,000 credit surpassed the amount of legit closing costs.   The origination was not called a "discount" so I highly doubt the Loan Originator used the excess credit to do the right thing and buy down the buyer’s rate.   Especially when the listing agent requested a copy of the good faith estimate or other documentation to support the excessive closing costs.   When the Loan Originator left the closing table, they attempted to take all remaining left-overs and scraps…licking their chops.

This greedy act by unscrupulous loan originators happens more often than you would like to know.    It’s wrong on so many levels, I don’t know where to start!  It’s taking money away from the seller, buyer and not honoring the purchase and sale agreement.   What can an agent (listing or selling) do to prevent this from happening to their client?

Here’s just a few ideas:

  1. Get a copy of the buyers Good Faith Estimate (GFE) before the seller agrees to pay closing costs when an offer is being considered.
  2. If you’re the Listing Agent, have your Mortgage Professional review the buyer’s GFE to make sure the cost and rate are within reason.
  3. Don’t use "up to" for closing cost.  Have the closing cost be a set figure for the credit.   This leaves no question as to what was intended for the buyer.
  4. Review the estimated HUD-1 Settlement Statement prior to closing.
  5. Have the Buyer bring a copy of their Good Faith Estimate and Lock Agreement to their signing appointment.   If the rate and closing costs are the same, yet the origination is increased…you’ve got a greedy gobbler for a Loan Originator.
  6. If you find that your Loan Originator (LO) is indeed taking the extra left over closing cost credit, put your foot down.   Contact them ASAP or your Real Estate Agent and demand to see the GFE and to have the LO explain their increase in origination.

Everyone loses when a loan originator takes more than they should.   If your LO is caught with their hand too deep in the cookie jar, slap it hard!

Borrower Beware

I wasn’t planning this post to be part of my debt series but when I saw the front page of the Seattle Times this morning…the timing is uncanny.   Borrower, beware:  debt disaster looms as rates rise on easy-money.   

This is a tale of a couple who was turned down my many mortgage lenders for zero down financing because they had no savings and $20,000 in credit card debt.  They are a common portrait of a subprime home buyer over the past 2-3 years.

I have issues with both their loan originator AND the subprime borrowers in this report.   

"The couple signed two mortgages to buy their $246,800 house in July. The first loan, a so-called pick-a-payment loan for 80 percent of the deal, had a variable interest rate. The second mortgage, at 12.5 percent interest, covered the rest. The deal included a pre-payment penalty on the first mortgage, and a balloon payment on the second.

Not long after they signed the loan, [the home buyer] decided to dump her sedentary office job to become a personal fitness trainer. The new job paid less, $7.89 an hour, but she had the opportunity to earn commissions as she brought in clients."

There is nothing wrong with an 80/20 subprime mortgage when it’s structured correctly and the clients understand that they have 2-3 years to prepare for refinancing.   This means they need to improve their credit scores (having a mortgage paid on time helps credit scores) and to reduce frivolous spending.   They need to be accountable and take a hard look at themselves and their finances.   Switching from a fixed income, even if it’s a boring job, to a new career that pays commission is irresponsible as a brand new home owner.

The pick a payment program is negative amortization and is not the best program for anyone with 100% financing, let alone a subprime borrower.    In fact, it’s probably the worse program a first time home buyer (subprime or not) could have.    They will 9 times out of 10 opt for the lower (deferred interest) payment and not fully grasp what the consequence are when their mortgage recasts at the higher rate and fully amortized payment.

"I had no idea the interest was going to climb like it is — they didn’t tell us that at all," Fultz insisted. "Maybe I wasn’t listening. Maybe I’m not good at words. Negative amortization? I never even heard of that."

Their Loan Originator’s response to this (you might to sit down and put away any sharp objects before you read this): 

"I agree, it isn’t explaining it in full… But…it’s explained to the client 47,000 freaking times."

And to top it all off, the Loan Originator, who’s business primarily consist of feasting on subprime buyers says she can’t make her mortgage payments now due to the decline in the subprime market.

The pullback has cratered the business model for brokers like Mills. She used to write 10 to 15 loans a month. In March, she wrote two. In February? None.

"I didn’t make my own mortgage payment this month," [the LO] said in April. "But nobody feels sorry for me."

Oh boy…someone pass me a hanky!  This Loan Originator closes 10-15 deals typically a month and I’ll eat a shoe if she’s not making more than 1.5% on each transaction.   And a few tight months SHE’s missing her mortgage payment?   

Please work with a professional Mortgage Planner.   And not the first person who tells you "yes".    That type of LO smells your desire to own a home and will take you to the bank.   And they will not be there for you after closing…unless you want a new mortgage! 

Buyer beware, indeed.

Related post:  The Debt Disease:  Dollar Buy Dollar