PREDATORY LENDING AND MORTGAGE FRAUD
Q. You hear so much about predatory lending today. ls there a
working definition for it?
The Mortgage Bankers Association (www.mortgagebankers.org)
defines predatory lending as “intentionally placing consumers in loan
products with significantly worse terms and/ or higher costs than loans
offered to similarly qualified consumers in the region for the primary
purpose of enriching the originator and with little or no regard for the
costs to the consumer.”
Q. What are some examples of predatory lending?
Lending practices that are readily identifiable as “predatory"
include:
• Selling a high-cost, high-interest loan to a borrower who would
qualify for a lower-cost, lower-interest loan that the same lender
offers
• Adding products or services, like credit life insurance, to a loan
without adequately informing the borrower about the need or
cost of the items
• Refinancing a mortgage repeatedly within a short period of
time and charging higher than normal loan origination fees
and points each time
Q. ls it possible for a consumer to innocently get involved in
mortgage fraud?
Yes, and, unfortunately, it’s occurring with greater frequency. Let’s
say you End a house you love, but the seller has it priced a little high
in order to pay off his mortgages, cover his closing costs, and pocket a
bit of equity. If you buy the house, he promises to give you back $4,000
after closing to help offset the higher purchase price. Sounds innocent
enough, right?
Wrong. This cash-back—at-closing scheme constitutes mortgage fraud
and is punishable under federal law including federal prison time and/
or tens of thousands of dollars in fines. The reason is that you’re keeping
a side contract a secret from the lender while trying to trick her into
approving a mortgage loan for more money than the property is worth.
But, as the borrower, you’re hurt as well. You`ve overpaid for the
property and are saddled with a loan that you may not be able to afford.
Housing values drop and you’re stuck owing more on the property than
you can sell it for. The lender is forced to foreclose and you lose the
house.
Then there’s the matter of the $4,000 cash to you at closing. \/Vhat
makes you think you’ll ever see the money? Since you’d be participating
in something illegal, the cash-back agreement won’t be part of your
purchase agreement or your closing statement, and you legally won’t
have a leg to stand on to enforce him to compensate you. You will have
overpaid for a property, be stuck with higher payments and property
taxes, and have nothing to show for it but a painful life lesson.
Mortgage fraud is nothing to mess with, no matter how rosy the
situation appears.