Like any industry that is capital intensive with money flowing like wine there are a few bad apples in the barrel. There are lots of new brokers out there and some brokers are looking for get rich quick schemes. Real Estate market has been hot and will be again. When things slow down some brokers get overly aggressive and promise things they cannot deliver.
National Association of Mortgage Brokers (NAMB) says as many as 30% of brokers are questionable.
Everyone should be made aware of some tactics used to exploit particularly weak borrowers or borrowers in financial trouble. Here are some examples.
Hidden Balloon Payment Nearly everyone has seen the ads for a high dollar amount loan for a ridiculously low monthly payment. What some lenders will do is forget to tell you that the payments are interest only and at the end of the term of the loan a huge balloon payment is due. If you can't refinance or pay the loan off you may lose your home.
Flipping Loans This is the practice of luring a borrower into repeated home equity loan refinancing over a period of time. Each time the rate goes up and points and other closing costs are rolled into the loan making the net proceeds lower than expected and the payments higher than expected.
"Home Improvement" Loan A contractor offers to do some much needed work on your house but you tell him you can't afford it. He offers to get financing thru a lender he has done business with before. The work on the house starts. Then you are asked to hurry and sign some papers for the loan. You realize the loan is a home equity loan and the rate is very high so you hesitate to sign. The contractor says he will not do any more work unless you sign. The contractor already has a lien on your property.
Bait and Switch Tactics This is the practice of getting to within a critical time of closing the home equity loan and finding out the terms are different from those agreed to. The unscrupulous lender is hoping that he has the borrower in a position that he must accept the terms.
No matter what your situation borrowers are well advised to follow common sense when picking a mortgage broker. There is a lot at stake. Don't press the "EASY" button.
Jack Krohn is a leading free lance writer on Home Equity and Mortgage issues with over 35 articles to his credit. He is also the #1 author of Home Security Articles in the country.
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