Today Senators Barack Obama and Dick Durbin introduced legislation in the senate to curb mortgage fraud. This is a reactionary measure to curb the increase levels of default consumers have been experiencing since the subprime lending fallout. They have suggested that the senate define mortgage fraud and put a support system in place for consumers, who take out high interest loans. These measures would include forcing banks to set aside money for credit counseling, as well as giving consumers more rights during the foreclosure proceedings. Is this too much? Additionally, how would this really affect consumers?
What is Mortgage Fraud?
While there are numerous types of mortgage fraud, most frauds make it almost impossible for consumers to make payments. These unscrupulous lenders expect to foreclose on properties and typically start the foreclosure process right away. These loans might have large interest rate increases, stiff prepayment penalties, or stringent covenants. These loans might have covenants that allow a bank to request full payment if any payment is late or missed. In high risk loan situations, it is almost a guarantee that one payment will be late.
In addition to the onerous terms, these banks are very aggressive during the foreclosure process. They might hide information from the borrower or they could make threats that lead the borrower to believe there is nothing they can do. These lenders prey on people who cannot qualify for standard mortgages, but still have a desire to own their own homes. They typically require very little down, but have a lot of fees.
How to Detect Mortgage Fraud?
With banks cracking down on subprime lending, mortgage fraud will be on the rise. The easiest way to detect fraud is to simply read all of the mortgage documents you are provided and ask probing questions. Never be ashamed to ask someone to explain anything. If you still don’t understand it, continue to have them explain until you do.
It is also help to get the opinion of your real estate agent or a mortgage broker. Make sure you get more than one opinion. While less creditworthy people should expect higher interest rates, they should still be able to make their payments comfortably. Avoid prepayment penalties and watch out for unusually large late fee payments. Most importantly, understand any clause that allows the bank to request full payment immediately. These should be red flags. If they are hesitant with providing you information or they request you sign forms that you cannot read, don’t take the mortgage.
What can You Do if You are a Victim of Mortgage Fraud?
The first thing you should do is contact the residential mortgage association in your state. Check out the American Association of Residential Mortgage Regulators. They can help you find the reporting agency you should be in contact with. The next step should be to contact a lawyer, who can then contact the lender. There may be a cost here. If you cannot afford this, contact the bank and request the fraudulent loan division. If this is not available, contact another bank in your area and explain your situation. They should then be able to recommend the proper regulation authority.
Mortgage fraud is on the rise, so be on the lookout when you buy your first home or when you refinance your existing mortgage.
