Friday, December 26, 2008

Mortgage Fraud Alert: Predatory Lenders in Michigan

Predatory lenders are lenders who commit mortgage fraud to help homeowners get a higher loan. They may obtain inflated appraisals, falsify income information or do whatever it takes to qualify the borrower for a mortgage. In many cases, the borrower cannot afford the terms of the mortgage.

Predatory lenders are not out to help the borrower at all; they are only in it for themselves. They are often using their clients in order to gain commissions. A predatory lender looks for clients who have little knowledge and prior experience with mortgages. They will take their application, check their credit, and do whatever it takes to get them approved for the American Dream of homeownership, very often, in a home that they cannot afford.

In many cases, the client gets an adjustable rate mortgage (ARM), where the interest rate is fixed for 2 or 3 years, and then it increases, causing their monthly payment to increase substantially. People find themselves paying on an interest only loan, where nothing is applied to the principal. The lender promises to help the client refinance with a fixed loan before the ARM is reset. Legally, no one can make this type of promise.

A loan officer might have the client sign blank forms, telling their client that they have to see what they can do for them before filling in the blanks at a later time. This is known as ‘backing into the documents.’ When a loan officer has sign forms with blank fields, they are able to manipulate the borrower’s loan documents to fit their commission needs.

Predatory Lending Habits

There are several things predatory lenders commonly do to benefit themselves while seriously hurting their unsuspecting clients. Here are some examples of predatory lending practices:

Falsifying documents to show the client’s income as being higher than it actually is in order to qualify them for the mortgage; this is illegal.

Obtaining inflated appraisals to get a higher mortgage; therefore, a higher commission. In this case, the lender and the appraiser are both breaking the law.

Encouraging clients to borrow assets from family; this is not the way to show financial worth.

‘Bait and Switch’ is where the client is presented with specific terms that are changed just before closing.

Refinancing the mortgage and charging a higher than normal origination fee.

Selling a high-cost, high-interest loan to a borrower who would qualify for a loan with more favorable terms which the lender also offers

Convincing applicants to borrow more than they can afford to pay back

Pressuring applicants to accept high-risk terms like interest only mortgages with high prepayment penalties.

Loan officers are paid on commission; the more loans they sell, the more money they make. The commission earned for selling high-cost loans and additional products and services often encourages a loan officer to bend or break the rules in order to benefit himself.

There are certain rules and parameters used for approving and underwriting a home loan. Though these stipulations may seem overly restrictive, they are in place to protect borrowers from getting into a mortgage that they cannot afford to repay.