Mortgage Scams And Tricks
Deceptive practices used by mortgage loan providers and other participants in the mortgage process. Scams by Loan Providers: Lenders and mortgage brokers may employ a number of tricks to increase their income from originating a loan, at the borrower's expense. Make Low-Ball Offers: To draw customers, some loan providers will advertise low-ball prices that they have no intention of honoring. Mortgage shoppers should place little credence in media or oral price quotes, especially when the price is below that of all other loan providers. Overstate the Market Price: The loan provider making a low-ball offer can attempt to validate it in another way. He can overstate the market price when it comes time to lock the terms. This practice, however, can be deployed regardless of whether the original price was understated. Pocket the Borrower's Rebate: Some unwary borrowers are steered into high-rate loans on which they should receive a rebate from the lender but don't. For example, the loan officer's price sheet shows 6% at zero points, 5.75% at two points, and 6.25% at a two-point rebate. If the borrower is willing to pay 6.25% without argument, the rebate is retained by the loan provider. This abuse can be avoided by asking first about 'the lowest rate possible' and how many points it would require. If you want a rebate deal, you can work yourself down to high rate/rebate combinations. Ask to see the schedule of rates and points from which the quote given to you has been extracted. Press to see them on the fax price sheet or computer screen. If the loan officer insists on transcribing them to a separate piece of paper, ask point-blank if she is adding an overage. Exploit Shifts in Borrower Niche Preferences: Borrowers sometimes change their minds about some feature of the transaction that has pricing implications. If the borrower is in too deep to back out, the loan provider may pad the new price. For example, the borrower decides to shift from a 30-year to a 15-year FRM. On a day when a shopper soliciting rates quotes would find the quote on a 15-year to be 3/8% below that on a 30, a committed applicant might receive only a 1/4% reduction. Other preference shifts where the same thing can happen include changing the combination of interest rate and points, changing between FRM and ARM, and electing to escrow or not escrow. Offer No-Cost Loans That Aren't: Some loan providers tout deals as 'no-cost' when the settlement costs are added to the loan balance. These deals should be referred to as 'no-cash.' This is a scam if the borrower doesn't understand that he or she is borrowing more to pay the settlement costs. Surreptitiously Change the Contract: Borrowers who accept whatever they are told may find that the note includes a provision favorable to the lender, about which the borrower has no knowledge. A favorite is a prepayment penalty, which increases the value of a loan by 1% or more. A loan provider who includes it in the contract without your knowledge can put the point in his pocket rather than in yours, where it belongs. Sell Biweeklies Under False Pretenses: The biweekly mortgage meets the needs of some borrowers, either to help them budget or as a forced-saving device to pay off the loan early. (See Biweekly Mortgage.) Some lenders, however, promote the simple-interest biweekly as a way of substantially accelerating the rate of payoff, compared
Popular Mortgage Terms
A mortgage on which interest is calculated daily based on the balance on the day of payment, rather than monthly, as on the standard mortgage. ...
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In connection with a home, the value of the home less the balance of outstanding mortgage loans on the home. ...
A lender who offers mortgage loans directly to the public. ...
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