You hear a lot of mortgage broker fraud in the news these days. Especially since the sub-prime mortgage fiasco. Many borrowers were put into loans they simply could not afford based solely upon their credit history and undocumented income. When these adjustable rate mortgages reset to higher interest limits, the borrowers simply could not afford to make the payments at the new rate. For awhile, the sub-prime loans were not an issue because the real estate market was appreciating at such a fast pace that borrowers could either refinance to a lower interest rate or sell their home for a profit and pay off the existing mortgage. However the last two years, the market basically crashed with the bubble bursting in 2007, these homeowners had no equity in their property, and could not refinance or sell their homes. As a result, a record number of foreclosures and short sales started occurring between 2008 to current.
The government has been investigating mortgage loan broker fraud recently. The cause in many cases is simply greed. Although there are a large number of criminals and scam artists that make their living out of committing mortgage fraud against innocent homeowners as well.
There are ways to protect yourself so that you are not a victim of mortgage fraud or predatory loan practices.
Only Deal with a Reputable Lender or Mortgage Broker
You should only deal with a reputable lender or mortgage broker when obtaining a mortgage loan. Get a recommendation from a family member, friend or your Realtor. Using a trusted lender is the number one way to protect yourself against mortgage fraud.
Hire a Real Estate Attorney
Talking to securities fraud attorneys or a securities fraud law firm to review your loan documents before you sign them to avoid any fraudulent practices in the very beginning. It’s easier to correct a mistake before it happens. Or if you report mortgage broker fraud and your attorney suspects the claim is true, then you will need to deal with another lender.
Violations of Truth and Lending Act or RESPA
Your attorney will do a forensic loan audit and review. If your attorney finds that the lender has violated the truth and lending laws or RESPA (Real Estate Settlement Procedures Act) disclosure laws, then you do not need to go ahead with the loan. If you have already signed the papers you have three days to rescind, but the law can be enforced for up to three years after you signed the papers if there is a foreclosure action, and there were truth and lending violations found during your forensic loan audit.
Don’t Buy a House Unless You Can Afford It
Figure out how much you can comfortably afford to pay for your mortgage payment, taxes and insurance without having to sacrifice your life style. Make a list of your income and your debts, and talk to a reputable mortgage broker who will pre-qualify you. If you have any doubts, then wait and try and save a larger down payment, or improve your credit score and trying again in 6 months or a year. A good rule of thumb is that your house payment should not exceed 31% of your debts.