How to Recognize Predatory Mortgage Lenders
The bulk of mortgage lenders in the marketplace are consumer-oriented and comply with state and federal laws. These lenders operate within the scope of real estate law and ethics. However, there are lenders who prey on the naive and uninformed. In this case. They take advantage of people who don't know how to tell honest mortgage lenders from the predatory types.
To avoid being preyed upon, you should not respond to unsolicited marketing efforts, such as:
- Flyers thrown on your doorstep, stuck to the windshield of your car, or tacked to a telephone pole
- Direct mail from companies you've never heard of before
- Telemarketers who try to pressure you over the phone
Of course, there are legitimate places to find a mortgage. But, like a lot of professions that involve large sums of money, complicated products, and unsophisticated consumers, there is a potential for fraud when choosing a mortgage lender. How can you tell if a lender is a scammer?
Here Are a Few Warning Signs
The representative comes off as a fast-talker and smooth operator. You might get the impression that the discussion is more of a spiel that has been repeated so many times it's now rote and not a conversation.
The rates and fees appear to be unusually high. Ask to have your FICO score explained to you and compare rates among other lenders. Call another lender and ask about that particular rate.
For reference, in 2020 and 2021, the average 30-year fixed-rate mortgage rate is expected to be 3.8%.
The lender is using high-pressure tactics with you, urging you to sign now. If you are refinancing, you have three days to change your mind. If you are buying a home and obtaining a purchase loan, ask what happens if you do not immediately "lock" your loan rate.
For reference, a mortgage rate lock, also known as a rate-lock agreement, is essentially a promise from your lender stating that the rate you're granted when you receive your loan will remain—regardless of what happens with the market.
You are told that "bad credit is no problem." Credit is always an issue. Good credit with high FICO scores means you will get favorable terms on your loan. Bad credit might prevent you from getting any loan. Lenders who specialize in making loans to buyers with bad credit are known as subprime lenders and do not offer attractive rates.
The lender encourages you to lie on your loan application and claims "it is done all the time." Do not sign blank documents and do not make false statements on your loan application. It is against the law to defraud a lender. Mortgage fraud is punishable by the FBI.
You are pressured to accept a risky-sounding loan you do not understand or want. Most folks have some kind of idea how much they feel comfortable paying per month on a mortgage. Do not agree to make higher payments than you can afford to pay. Don't rely on "market swings" either up or down as to whether you can afford to make a payment. It is OK to choose to make a lower mortgage payment and take out a smaller mortgage.
The lender pretends to care about you but you have a funny feeling about the pretense. Listen to your intuition. It is asking you to pay attention to this nagging feeling that something is not right. Trust yourself.
You receive assurances that the loan being offered to you will solve all your financial troubles. Nothing will solve all your financial woes until you stop spending money. There is nothing magical about a mortgage, and nobody is doing you any favors in this business. Paying off your credit cards through a mortgage extends your woes over a longer period of time, and it's likely to happen again.
Only one lender is offering you a loan and claims nobody else will lend to you. Talk to other lenders. Obtain a copy of your credit report.
At the closing table, all your fees and charges are different than what you initially agreed to pay. If this happens to you, pull out your estimate and ask for an explanation. Continue to ask questions until you are satisfied with the answers. If you are still suspicious and do not receive satisfactory answers, get up and leave the closing table. Don't close the transaction until you speak with a lawyer.
Help put these crooks out of business. Report predatory lenders to the Federal Trade Commission and/or your state attorney general.
Freddie Mac. "Freddie Mac December Forecast: Optimism Heading into 2020." Accessed Feb. 23, 2020.
American Financing. "Closing on a Refinance: What to Expect." Accessed Feb. 23, 2020.
Quicken Loans. "What Is A Mortgage Rate Lock?" Accessed Feb. 23, 2020.
Bad Credit. "9 Best Subprime Loans for Bad Credit (Personal, Auto, Home)." Accessed Feb. 23, 2020.