The Top Five Methods to Protect Yourself From Predatory Mortgage Lending Practices
It is common for individuals who have jobs in financial services can become greedy and “cross over to the dark side”. The opportunity for individuals to make tremendous amounts money for their companies or commission for themselves has always been a reason to work in the industry. Banks are now giving mortgage brokers more opportunities to sell with new programs and marketing materials. The incentive to close loans has sometimes defeated the purpose of putting a borrower in a better financial situation.
For many years regulations have varied by state as far as mortgage broker training and having to hold a license. With “the wild west” mentality in some states, mortgage brokers and bankers took advantage of borrowers with predatory lending practices.
Predatory lending takes advantages of borrowers with low credit scores, high debt to income ratios, negative financial histories, and little financial knowledge. They view the loan officer as a financial professional and are truly seeking quality advice, not to be taken advantage of.
Rising cases of predatory lending have tightened lending regulations across US banks making sure that loans structured with the intentions of “creating deals to close loans” are a thing of the past. In turn, borrowers with fair credit seeking loans for beneficial reasons could be denied. Additionally, a loan for a borrower with excellent credit and a stellar financial history could be denied or have the mortgage process be held in review.
How can borrowers protect themselves from predatory lending?
1) Get everything in writing.
Mortgage brokers are salesmen controlling the most important financial decision of your life. While most are ethical, you still need to protect yourself. If they say something that sounds too good to be true, get it in writing and have it reviewed by a real estate attorney.
2) Use an honest appraiser.
An unscrupulous tactic in closing loans is to increase the appraised value of the home. Increasing the value of your home by overstating the appraisal beyond market value is something you could be paying for down the road.
3) Never lie on a mortgage application.
If the mortgage broker or bank tells you to lie on the mortgage application do not move forward with that individual or company.
4) Ask for a list of fees in writing.
A “good faith estimate” usually differs from the actual fees paid at the closing table. All fixed costs (credit report, title, appraisal, etc.) should be made clear in writing and not deviate at the time of closing.
5) Meet face to face with professional working on your mortgage.
Use only trusted mortgage professionals and have a face to face meeting with them. Closing a mortgage from someone who contacted you from cold call is never a good idea. Your attorney or accountant can steer you in the right direction and set you up with a professional in your area.
The financial services industry is still marketed heavily. With pop-ups on the internet, radio ads, e-mails, giant billboards, and aggressive telemarketers, it is often difficult to avoid “the mortgage deal of a lifetime”. If you are in the market of purchasing or refinancing a home, understand that professionals (banks, title companies, real estate agents, etc.) may sway you into working with someone that they know.
As industry professionals rely on referrals, trust your instincts when moving forward with somebody new. You should never feel rushed on uncomfortable during any step of the loan process, especially at the closing table. It is always wise to have an advocate on your side such as a real estate attorney or accountant that can recognize classic “danger signs” that you could potentially be paying for years later.