Robert Shumake’s 10 Tips to Protect yourself from Mortgage Fraud

10 Tips to Protect yourself from Mortgage Fraud

Mortgage fraud is one of the fastest growing white-collar crimes in the country with Michigan being one of the top 10 locations for real estate scams. The downward trend in the real estate market has encouraged mortgage fraud perpetrators to develop and utilize many schemes. The recent rise in foreclosures along with a depressed market, declining values and decreased demand has placed pressure on lenders, builders and home sellers. Fewer loans will be originated as lending practices tighten in response to the subprime lending crisis. Identity theft is a popular tool for use in mortgage fraud. With higher lending standards being enforced, individuals with good credit are valuable to perpetrators; therefore, at risk for identity theft and mortgage fraud schemes.

How it Works

Mortgage fraud is divided into two major categories; fraud for profit and fraud for housing. Fraud for housing involves misrepresenting income/expense and assets/liabilities information on an application in order to obtain funding to buy a home. Fraud for profit involves industry professionals including mortgage brokers, property appraisers and real estate agents who over state a buyer’s income, assets, property value and other information to trick lenders into approving mortgages.

Sometimes people commit identity theft to obtain housing loans, sell someone else’s home or take over other’s property. Here are some tips to protect yourself from becoming the victim of mortgage fraud:

• Never sign blank or incomplete documents
• Never purchase property that you have not seen and personally inspected
• Use only licensed mortgage bankers or lenders; find a broker through the National Association of Mortgage Brokers (http://www.namb.org)
• Have a local, licensed real estate agent do a BPO (Broker’s Price Opinion) to determine value
• Don’t be pressured into using a particular lender, real estate agent or appraiser
• Know your rights as a mortgage borrower
• Don’t buy into get-rich-quick schemes of instant equity or investment property using your own name – investment property should be owned by an LLC to protect you from liability exposure
• Do not work with someone who suggest that you lie on your mortgage application
• Beware of predatory lenders who charge excessive fees and prepayment penalties
• Most importantly, be sure to look over and understand your truth in lending disclosure documents which spell out the terms of your mortgage, before signing a contract with a mortgage company

If you are in doubt, have an attorney look over your documents and advise you. The fee for this service is little compared to the tens of thousands you can be charged for dealing with problems caused by mortgage fraud later.

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.