Got Mortgage?? Better Make Sure You Know Who You Might Be Getting?

One of the worse parts of what we do everyday is when the opportunity presents itself to counsel somebody who has either lost their home to foreclosure, is losing their home , or fearful of defaulting on their loans. What I find most of the time is that these people, short of illness or job loss, directly blame their mortgage lender. In many cases, that is just a poor example of blaming anybody else for your problems...but more and more often, I have found it to be quite plausible. When I start to really look into many of the mortgage notes these people have executed, often in the equation I find that some "too slick" lending procedures have confused these borrowers. Heck, they probably would of confused me with all the paperwork I have experienced everytime I have taken out a mortgage!

Well, in an effort to help, the State of Indiana Secretary of State has put together a website that might be beneficial for anybody to check prior to getting into bed with a mortgage lender (figuratively speaking of course...what you do on your own private time is up to you!).

http://www.indianainvestmentwatch.com/mortgage.html

The Secretary of State, Todd Rokita says"While many elements contribute to Indiana's top state foreclosure ranking, checking on your loan broker's credentials is just one of several steps that aware consumers should take to ensure they are protected in the home buying process,"
Visitors to the Web site can search the Secretary of State's database to ensure their broker is registered with the state.

The site also provides educational material to assist consumers in their money-related decisions.
From the website: the Top 10 Red Flag List for Mortgage Loans:

Shifting the closing date. The borrower's mortgage closing date can shift if the borrower does not have a written commitment from the lender. Homebuyers can find themselves in a default situation if they quit paying their existing mortgage based on an oral promise that the new loan will be closing quickly.

Offer a "free" refinance. Sometimes mortgage brokers will promise "free" refinances of a mortgage in the event mortgage rates drop further from the borrower's present mortgage interest rate. Every real estate closing has costs. While a mortgage broker may agree not to charge a fee, other closing costs may still arise. If such an offer is made, the borrower should get the offer signed and dated in writing.

Total reliance on the loan broker. The lender and the loan broker play different roles in the mortgage transaction. They are usually different, unrelated business entities. The borrower should know the lender's identity and receive a copy of the "locked loan rate commitment" from the lender in writing.

"Pre-approved" and "pre-qualified." These are marketing terms, not legal ones. The only legally binding mortgage loan commitment must be in writing from the lender and must contain specific terms, such as the mortgage loan dollar amount, the mortgage interest rate and the date the mortgage loan commitment expires.

Offer for a "free" real estate appraisal. Mortgage brokers may offer a "free" real estate appraisal under the condition that the borrower closes on a mortgage loan through their company. Borrowers should be prepared to pay for the appraisal if they decide to take their loan business elsewhere.

Falsified income. An unscrupulous loan broker may encourage the borrowers to falsify their income on the mortgage application. This is fraud. A buyer should never present false information. If buyers can't document their sources of income, they are probably trying to buy a property that is not within a reasonable budget.

Loan flipping. This practice occurs when an unscrupulous broker convinces a borrower to refinance repeatedly over a short period of time. All of the closing costs can be included in the total amount borrowed, resulting in the loan broker receiving a new commission and additional fees for closing each new loan.

Over-appraised residential real estate. This occurs when an unscrupulous loan broker, real estate appraiser and/or real estate agent collude to get a property appraised at a value grossly above its market value. If the borrower falsifies income to get the loan and the loan is foreclosed, the lender can pursue charges of fraud against the real estate appraiser, real estate agent, loan broker and the borrower.

Undisclosed pre-payment penalties, balloon payments and rate and terms switched at closing. The previously mentioned loan clauses do not have to be disclosed to the borrower in writing before closing. It is up to the borrower to ask about them. If buyers do not ask, they could end up with a loan much different than what was verbally agreed upon.

Post-closing squeeze for more fees. The HUD-1 Settlement Statement must list all fees paid at the closing table or paid outside of closing. Anyone who calls the borrower after closing and tries to collect additional undisclosed fees is acting illegally. The borrower should also contact the Secretary of State's office to report such attempts.

Finally, the following is noted at the site:
In 2005, investigators from the Secretary of State's office took part in a sweep of licensed loan brokers in various parts of the state. Thirty-two examinations were conducted, resulting in the discovery of 37 separate violations of the Loan Broker Act. As a result of these violations, Rokita's office entered into seven consent agreements totaling $3,300 in civil penalties, eight deficiency letters, two enforcement cases and the termination of three loan broker licenses.

All I can add to that is those numbers are a small drop in the bucket compared to what we routinely see in our office just talking to people who have not lost their homes. Remember...if it sounds to good to be true...it probably is!