Due to the ever-increasing national slump in the housing market, there is growing concern that more and more U.S. consumers are falling victim to mortgage loan fraud or predatory mortgage lending. Predatory mortgage lending occurs when an industry party or institution, such as a real estate broker, mortgage broker, appraiser, lender or bank, willfully misleads or deceives a consumer into entering into a misguided loan for the sake of making additional profit. Predatory mortgage lending is not only illegal, it can cause severe financial hardship or ruin for a borrower–often resulting in foreclosure, bankruptcy and irreparable damage to a customer's credit rating.
Examples of mortgage loan fraud or predatory mortgage lending include:
- Encouraging applicants to include false information and/or lie about their income, expenses, or cash available for down-payments in order to get a loan, thereby lending much more money than a borrower can afford to repay.
- Asking borrowers to leave contract signature lines blank.
- Failing to include Good Faith Estimates, Special Information Booklet, Truth in Lending and Hud-1 Settlement statements.
- Convincing a borrower to refinance a loan several times, each time increasing monthly payments or amounts owed thereby "stripping" any equity accrued.
- Charging fees for excessive cost or loan terms and/or for nonexistent products and services. This can include inserting hidden clauses into contracts in which a borrower will unknowingly promise to pay a broker or lender to find a mortgage whether or not the mortgage is closed.
- Aggressively pressuring borrowers to accept higher-risk loans such as balloon loans, interest-only payments and steep pre-payment penalties.
- Targeting borrowers to cash-out refinance offers when borrowers are knowingly in need of cash due to medical, unemployment or debt problems.
- Brokers selling properties for much more than they are worth using false appraisals.
Buying or refinancing a home may be one of the most important and financially complex decisions a person will ever make. Many qualified lenders, appraisers and real estate professionals are ready and available to help a borrower find a nice home and secure a great loan. However, each year many consumers, often first-time homebuyers or seniors, become victims of predatory lending or mortgage loan fraud which can result in devastating financial effects. And when real estate/lending transactions operate within legal, although misleading boundaries, a default in contract can result in a potential borrower being sued.