REAL ESTATE
Mortgage Fraud
As discussed in Chapter 7 of our publication When to Buy and When to Sell: Combining Easy Indicators, Charts, and Financial Astrology (available on Amazon), and several previous blogs, the purchase of a home may be one of the biggest decisions, and investments, to make in one’s lifetime. Over the last few years, it has never been more difficult for young buyers, with rising inflation, property prices, and property taxes/insurance, and the situation appears to be only getting worse, with an increasing number of defaults and loans coming due.
Most home owners, especially first-time buyers, are not in a financial position to purchase a property fully in cash. They require a mortgage to spread out payments over time, and must qualify to be accepted for a long-term loan anywhere from 15 to 30 years generally.
There are several steps in the mortgage application process, including filling out the required paperwork, proving information regarding one’s income, savings, down payment source, credit history, and current debt. Once the application is filed, and an offer is made on a property, additional factors such as the home inspection and appraisal are also considered as part of the package.
There are also numerous types of mortgage programs from which to choose, including those that offer adjustable interest rates, lower payments for the first year, down-payment assistance, credit history conditional offers, and much more. This is where Mortgage Fraud and Predatory Lending, disguised as a “great deal” can adversely affect an unsuspecting and eager borrower.
Some signs to look for regarding Mortgage Fraud and Predatory Lending include…
· Excessively high “points” or fees charged to originate a loan
· Any agent or ad suggesting that credit history is a non-factor
· Prepayment penalties before any re-financing
· An adjustable rate that significantly increases over time
· Additional inflation of rates by a broker/agent over the lender’s charge
· An agent “rushing” a buyer into a decision
· Extending the commonly accepted debt-to-loan ratio
· The exclusion of taxes and insurance from the monthly mortgage payment
· Requests to sign any blank forms
· Basically, anything that sounds “too good to be true”
Predatory practices are nothing new, and were a major factor in the 2008 Housing Crisis, triggered by sub-prime loans, which offered starting rates well below the norm. Those “creative” loans then ballooned into much higher rates and defaults, which severely crashed the housing market. The lenders ignored high-risk loans, and then reclaimed properties when they defaulted, making the buyer the true victim.
To avoid these possible pitfalls in your home-buying experience, be sure to do the following prior to deciding to purchase…
· Develop a budget, and a solid financial plan
· Possess 6 months of expenses in savings, plus some extra should unexpected issues arise
· Ensure a credit rating is over 660, if possible, to avoid higher interest fees
· Determine the source and amount of any down payment
· Do not base the property price range on “future” potential earnings
· Be honest with yourself regarding how much can be afforded
· Utilize a reputable lender
· Avoid being rushed or upsold into any uncomfortable situation
· Be prepared to walk out on any transaction
Should you feel or determine that you have been misrepresented, taken advantage of, or outright scammed, there are avenues to pursue, including the Consumer Financial Protection Bureau, which is designed to protect consumers. They have the authority to impose heavy fines against financial institutions that violate federal consumer financial laws.
Finally, an experienced real estate agent, though they have no actual involvement in the acceptance of a loan, can assist greatly in the process by recognizing possible fraud and deceit. They may also be valuable in recommending honest lenders (they should provide at least 3), so long as they are not compensated by that institution for their referral.
Please visit the website www.augustassociatesllc.com for home values, listings, and professional assistance.
***As always, this information is not intended to be financial advice, or any specific buy or sell recommendation, but rather a guide to assist the reader in some further understanding of current economic conditions.
