The Home Equity Loan Zone

Scam Tactic Two – Forgery

Forgery is a key part of many scams. In the Detroit case cited above, the lender requested the title company to prepare two checks payable to the homeowner: one for $61,000 which the homeowner received and a second one for $42,000 which the corrupt lender endorsed with a forged signature and deposited into his own account.

In one California case, two con artists – one working as a financial advisor the other a handyman - convinced an elderly homeowner to take out a reverse mortgage to pay for home repairs. The financial advisor opened an account for the proceeds of the loan and forged the victim’s name to gain access to funds.

Another California case reported in the Santa Cruz Sentinel shows how dangerous it can be to sign “unfinished” documents:

Mrs. Sally Scott is 66 years old. While she receives Social Security and pension checks, she still can’t make ends meet. She saw an ad for a “reverse” mortgage — a loan that allows seniors age 62 or older to receive cash by borrowing against their homes and does not require repayment as long as they live there. Seeking a little financial cushion, she spoke to a mortgage broker about a $10,000 reverse mortgage.

When she received the loan papers, she noticed that the loan amount was $200,000. The broker promised that he’d change the figure, but insisted that she sign the paperwork first. Trusting the broker, Mrs. Scott signed.

A week later, she received a check for $200,000. She immediately notified the broker, who apologized for the mistake and instructed her to wire the money back. As it turned out, the account that Mrs. Scott returned the money to belonged to the broker. He disappeared, leaving her with a mortgage in default and no way to repay the loan.

Precaution: Never sign documents with blanks to be filled in or corrections to be made later. Carefully protect access to your checking and other accounts. Review and reconcile checking account and loan statements regularly. If you find something awry, contact your financial institution immediately.

In the Detroit case cited above, the victim caught on to the scam when she received a loan statement indicating the balance of her reverse mortgage (including interest) totaled $131,000.

Also, take advantage of the free credit reports available to you under federal law. Reviewing your credit report each year is also a good way to catch unauthorized financial activities under your name.

Part 3 Coming Soon

Mortgage delinquencies and foreclosures are increasing all across the country, especially in the highly volatile California housing market. Low income families that took out higher interest mortgage loans specifically designed for subprime borrowers are at the greatest risk.

As the mortgage industry became more competitive over the last ten years of rising home prices and record low interest rates, loans made to subprime borrowers – people with weaker credit ratings – suddenly became a billion dollar industry. In 1994, less than 5% of mortgages were at the subprime level. But by 2005, these loans accounted for over 20% of the market.

But the housing market is cooling off. Interest rates recently inched up and home prices are experiencing record breaking depreciation. The result? Many industry experts are concerned that too many borrowers are at risk for default. And they’ve got good reason.

Too many people took out loans with adjustable rates, interest only payments, balloon payments and other nontraditional mortgages. As interest rates and energy costs have risen, many of these borrowers are now facing serious challenges making their monthly payments.

Some experts are even concerned that an increase in foreclosures could threaten the country’s banking system. William Longbrake, a senior policy advisor to the Financial Services Roundtable, believes, “The worst is yet to come…. The bottom is probably still many months ahead.”

If you are or think you are going to have trouble making your monthly mortgage payments, don’t despair. There are things you can do to prevent foreclosure, but you must act immediately. Don’t wait.

Contact your lender right away and have an open, honest, conversation about the details of your situation. Lenders are not in the foreclosure business. They are willing to work with you and do what they can to help you keep your home. But the longer you wait, the more difficult the conversation will be.

In other future blogs, we’ll take a look at what you and your lender can specifically do to help prevent foreclosure.

If you’re considering a second mortgage home equity loan, watch out for Mortgage fraud. Mortgage fraud is one of the fastest growing white collar crimes in the country, adding to over $1 billion a year in losses.

Aggressive lenders often persuade unsuspecting homeowners to participate in their fraud, putting them at risk for fines and/or jail sentences. Their most common prey are sub-prime borrowers – i.e. people with low incomes and/or weak credit ratings.

So, if you want to stay out of jail, watch out for the common warning signs of mortgage fraud. Be skeptical and don’t just automatically believe everything your lender tells you. You don’t want your need or desire for a second mortgage get in the way of your judgment. Play it safe. Double check with your state regulating agency if something smells fishy.

Misrepresenting yourself on a loan application is probably the most common mortgage fraud. Lying on a loan application constitutes mail or wire fraud, which is punishable by fine and jail time. Therefore, don’t ever over exaggerate your income or home value or under report your personal debt on a loan application. Also don’t ever be conned into using an Employer Identification Number or EIN to create a new credit identity. It’s also against the law.

Every line on your application form should be filled by you. Don’t leave any lines blank or allow the loan agent to change any information. Deceitful lenders have been known to add fraudulent information to applications. But, ultimately, you’re signing the form and totally responsible for its accuracy.

In all your excitement and nervousness, don’t let anyone rush you through the closing process. Before you sign the contract, make sure your loan amount is not more than your home’s appraised value and that you’re not being charged any unexpected fees. Also check that your monthly payments are what you expected them to be and that there is no clause that forces you to pay “daily interest” for any reason. In other words, read the small print.

Lenders may also try to sell you credit insurance. They may even imply that purchasing credit insurance is a requirement of your contract. It’s not illegal for them to do this, but it is highway robbery. Credit insurance is very expensive and very difficult to cancel once you sign the agreement. But it is your choice to purchase credit insurance or not. No one can force you to buy it.

One final point. Beware balloon payments that often go along with low monthly and interest only payment plans. Balloons are extremely risky. Many borrowers are losing their homes to foreclosure because they didn’t have a fail-safe plan to get out of their balloon when it came due. So don’t get yourself into a balloon loan unless you know exactly what you’re doing.