Many borrowers we speak with have little understanding of what mortgage fraud or predatory lending is. And that’s just the way bankers and brokers like it. Who better to take advantage of than those who are in the dark? There are many ways brokers and lenders take advantage of borrowers. The real sin is the cost of these mistakes. The type of fraud will usually dictate the losses the borrower will incur. We’re not bashing all brokers and bankers – just the ones who take advantage of borrowers. Here’s a brief view of some of the most common types of mortgage fraud and predatory lending practices.
YSP (Yield Spread Premiums). Basically a kick-back from the lender to the broker. Usually a “reward” for putting the borrower into a loan they either weren’t qualified for or “up selling” them (charging an interest rate higher than what the lender quotes the broker). As an example the lender quotes the broker a rate of 5%. The broker calls you and says the best he can do is 5 1/2%. That ½ % over a 30 year time span can be costly to an unsuspecting borrower (approximately $74,000 in interest on a $500k loan).
Loan Discount Fee. This can happen two ways. 1). You tell the broker you’re unable to pay a certain rate he quoted. He states if you pay “x” the rate will be reduced. And then it’s either not reduced or reduced very little. 2). The broker simply pays himself extra by charging the borrower without telling the borrower or lowering the rate.
Bait and Switch. Fixed rate is switched to an adjustable rate without the borrower’s knowledge. Sometimes the borrower finds out for the first time when they come to our office for a loan audit. Adjustable rate loans usually cost the borrower much more in fees and interest payments.
Prepayment Penalty. This feature basically locks the borrower into the loan for a certain period of time. If the borrower refinances or sells before this period they’ll have to pay the penalty. The lock in time may be as long as 3 years!
Bogus Fees. This can be one of the worst fees. Why? Because you’re paying for a service you’re not getting. Bogus fees can cost a borrower thousands of dollars at the closing.
The end result with having a loan that may include any of the above is usually foreclosure. So in addition to what the above might cost the borrower, the cost of foreclosure must be taken into account as well.
This is a short list of how Mortgage Fraud & Predatory Lending Can Cost Borrowers $100,000+. If you feel you may be a victim of predatory lending or mortgage fraud give us a call for a FREE consultation.
The Law Offices of Robert E. Brown, P.C. 718-979-9779