Every industry has its shining stars and bad apples. The mortgage industry is no exception. For most consumers, a mortgage will be the largest single purchase they make in their lifetime. This makes picking the right mortgage lender even more important. How do you know which companies to avoid? And how do you spot a mortgage scam & fraud?
Spot Mortgage Scam & Fraud
Mortgage fraud is rampant, and while constantly addressed, cannot be stopped. Everyone involved in the mortgage industry, has probably seen or been a part of a mortgage scam at some point.
Unfortunately, criminals are getting more creative in how they target consumers, leading to major financial headaches for their unsuspecting victims.
Common Mortgage Scams
- There are all types of mortgage scams
- From the standard bait-and-switch
- To more aggressive and illegal schemes
- That involve straw borrowers and fake paperwork
There are a number or mortgage scams out there.
It’s the oldest trick in the book, and now it’s been adapted for use by unscrupulous lenders. There are many variations, but the gist is this: A potential borrower is baited with an enticing loan offer, like a competitive interest rate or low monthly payments.
That person puts a serious amount of effort into preparing for financing, until shortly before it comes time to sign on the dotted line. The lender presents completely new—and much less favorable —home loan terms.
Victims of the bait-and-switch scam often go through with obtaining the more expensive mortgage. They feel they’re already too invested in the loan:
- to back out
- or are fearful they won’t be able to find financing for their dream home elsewhere
Meanwhile, the lender reaps a generous profit without having to do anything outright illegal.
Loan flipping, also known as loan churning, refers to the practice of constantly refinancing a mortgage, often times when it is unnecessary, or offers little to no benefit to the borrower.
A broker, bank, or loan officer may encourage a homeowner to refinance their loan simply to collect the associated loan origination fee and/or other fees, saddling the homeowner with more and more debt, along with a longer mortgage term.
The practice of flipping houses has taken on a negative view within the housing industry. It is often associated with mortgage scams, but house flipping has actually existed for decades and is entirely legal. Many have made a small fortune “flipping” homes—buying property at a low price (usually a foreclosure) and then fixing it up to sell for thousands more. Regardless of how you feel about the practice itself, it only becomes a scam when a person outright lies about the value of a home in order to profit from it.
Mortgage Servicing Scams
After closing your loan you may be told you owe certain fees, or end up with different terms than those you agreed upon.
Mortgage servicing scams may also involve the originating lender who will discourage homeowners to refinance with a different lender, or simply tell them they aren’t able to do so. The borrower will then feel trapped with a certain bank or lender thanks to these conniving plans.
Equity stripping is another mortgage scam. This is where a bank or lender will encourage a homeowner to take cash-out of their home time after time until most of the equity is stripped away. And once the homeowner is stuck with a huge mortgage they can’t afford, they may foreclose and give their house up to the bank.
People who fall on hard times and get behind on their mortgage payments can become desperate to save their homes. That’s when scammers, who have access to public records of homes in pre-foreclosure, swoop in with offers of foreclosure relief to capitalize on homeowners’ vulnerability.
Some fraudsters claim they’re affiliated with the government or government housing assistance programs, and can swindle homeowners out of hundreds or even thousands of dollars in fees, according to the Federal Trade Commission, or FTC.
How to protect yourself against mortgage scam & fraud?
Though mortgage scams are rampant, you can protect yourself if you’re aware of the red flags and remain suspicious of any deal that seems too good to be true.
First, one of the telltale signs of a loan modification or mortgage scam is the request for an upfront fee. No legitimate program requires that you pay a fee prior to undergoing a loan modification and receiving assistance. Additionally, those who solicit mortgage relief:
- via flyers
- or on telephone poles
Are likely to be involved in fraudulent services. And if you’re ever offered help that requires you to:
- make payments to anyone other than your lender,
- relinquish ownership of your property
The best thing to do when experiencing financial hardship is to contact your lender directly and ask for help; sometimes they’d rather take a smaller loss on a home by reducing your mortgage than a big one as a result of short sale or foreclosure. And remember, if you can’t work out a deal with your lender, selling your home for a fraction of its original value is still a better option than losing it.
Graves Development Resources | Land Developer in Omaha, Nebraska
Graves Development Resources (GDR) has been designing and building the market’s finest neighborhoods since 2000, with over 5,000 home sites and important commercial development projects throughout Douglas and Sarpy Counties.
Our pages showcase current neighborhoods where new home buyers may select from hundreds of home sites. We are definitely “phone friendly” and welcome the opportunity to provide you all the information you need before making one of the most important decisions of your family’s future. Contact us for any questions.