Mortgage Tricks & Traps
For many their experience with lenders and the advice they get about their mortgage and the most suitable loan will be honest and true. However many also experience less than honest or straight forward advice and guidance from their lenders. Most of these problems are usually experienced the "Sub-prime" market where borrowers are more anxious and vulnerable. The problems also tend to be somewhat less with online companies who often publicise their prices and are therefore more transparent in their dealings.
As said before, most scams work because borrowers are in the sub-prime market and are desperate to afford a mortgage. Such people are vulnerable to being persuaded to "bend the rules" slightly and end up caught in a mortgage rip-off. My advice to anyone facing major problems affording a mortgage or getting approved for a mortgage, is to take a long hard look at WHY. Many people attempt to get a mortgage when their financial position or credit history is clearly going to be a problem.
The answer is to step back, and get these problems sorted out FIRST. If you are have large outstanding debts, see "7 Steps to Eliminate Debt" or if you are having problems with your credit history see: Credit Secrets Bible. Get your financial position straight BEFORE applying for a mortgage. Get your mortgage pre-approved BEFORE looking for a new home. That way, not only will you find it much easier to get approved and have a great deal, you will be far less vulnerable to the mortgage tricks & scams outlined below.
Below are some guidlines as to some of the more common tricks, traps & scams that go on in the mortgage market.
Mortgage Red Flag Signs
There are a few behaviours that if you experience should send up a red warning flag and make you seriously consider finding another lender.
Encouraged to falsify details on your loan application- typically such things as your income or credit history. These false statements effectively make you complicit in the deception and thus unable to complain to the authorities. Worse you may end up with a mortgage you cannot afford.
Asked to sign blank documents YOUR signature will be on a document that could contain terms written in later that you never agreed to. NEVER DO IT.
Asked to Sign without reading Most things you sign are legally binding. Anyone who asks you to sign without giving you the opportunity to properly read what you are signing - is probably trying to scam you in some way.
- Terms of the Mortgage keep changing There will always be some vague reason but the net result is that you end up paying a higher rate or fees than agreed. - Find another lender.
Closing documents not Ready. These documents should be available for you to read at least three days before closing, if not - watch out, there may be something unexpected in the final documents.
Evading putting things in writing When in doubt, ask for clarification in writing - if you don't get it; assume the worst.
9 Common Mortgage Traps or Tricks
Below is a brief list of some of the more common mortgage tricks & traps out there.
Mortgage Bait & Switch
The bait is the low-ball mortgage rate offered in advertising. This rate is then 'switched' once the customer has been hooked into the process, often blaming market volatility or some other detail of your finances or credit history.
Mortgage Brokers and Lenders are deperate to get you through their doors and into their hands. However it is true that lenders tend to specialise into different market niches. A mortgage niche is defined by a wide set of different borrower and property characteristics, surfice it to say that if there is a mis-match and the lender does not sell into the niche that most suits you. You cannot get the best price. Such lenders however may be reluctant to tell you this.
Underestimating 3rd party Closing Costs
Because lenders cannot be held responsible for 3rd party fees that need to be settled at closing, they often underestimate these to make their deal look better.
Mortgage Lender Fee Escalation & Kickbacks
The fixed fees charged by lenders are just estimates on the "Good Faith Estimate" and are not binding. Unscrupulous lenders can escalate their fees or find additional fees to charge. The first opportunity borrowers get to see these fees is at the closing table.
Incomplete ARM disclosures
The disclosure laws for Adjustable Rate Mortgages (ARMs) is insufficient to determine the potential costs of the mortgage after the initial period. It is up to the consumer to ask the right questions and get the details in writing. The three most important questions are:
- How long the rate quoted will last?
- What will happen to the rate and payment after the initial period?
- What will happen to the rate and payments in any subsequent adjustments after the first one?
Rate Lock Scam
Here the mortgage broker will quote a lock price in points, this would normally be shared between the broker and the lender. Sometimes however the broker will decide to "play the market" and not actually lock the loan with the lender. If market prices stay the same or drop over the period of the lock he makes more money. If however the price rises substantially, the broker may not be prepared or able to cover the loss. Leaving the customer unprotected.
We mentioned this scam earlier on. Unscrupulous lenders will insert terms and conditions into the contract that had not been agreed. Pre-payment penalties is a common one because it increases the value of the loan in the secondary market. The first the borrower gets to see of it is at the closing table where they must choose to accept it or walk away from it and risk losing their home purchase. They rely on you being forced to take the later.
No Cost Mortgages
There is NO SUCH THING as a no-cost mortgage. Period. Anyone who tells you otherwise is trying to pull the wool over your eyes. Typically the costs are in the mortgage itself.
Here lenders, brokers or a bank constantly encourage a borrowe to refinance a mortgage or loan with little or no real benefit to the borrower, simply so that they can collect the associated fees and commissions.