Common Mortgage Scams and How to Avoid Them

During the recent housing crisis, scams became quite common. Here are some typical hoaxes, and advice on how to avoid being duped. 

1. The Savior Scam
If you’ve ever been on the brink of foreclosure, you’re already well aware of the flood of letters, emails and phone calls you’ll receive offering to help save you from your situation. When homeowners fall behind on mortgage payments, the lender files a Notice of Default, making the mortgage troubles (and property address) public record. This makes the homeowner easy prey for con artists, who typically set up fake companies offering to help pay the mortgage and get the homeowner out of foreclosure. They can’t help, and will likely try and get the owner to sign the house over to them so they can sell it and reap the profits, or ask for upfront fees before they help. 

2. The Renter Rip-off
In this type of scheme, a fraudulent investor, who is not making mortgage payments, rents out a home on the brink of foreclosure and pockets the money until the lender forecloses. 

3. The Ghost Buyer
In this fraudulent scenario, the true identity of the borrower is concealed through the use of a nominee, who allows the buyer to use his or her identity and credit history in order to secure a loan.

4. The Fake Appraisal
This type of scam typically involves several parties, such as a mortgage broker, investor, and title company. All are paid off to help inflate the value of an appraisal on a house. The home might really be worth $450,000, but the house is sold for $500,000 to an unsuspecting buyer. 

5. The Bait and Switch
There are many variations on this age-old scam, but the mortgage version typically goes something like this: a potential buyer is baited with an enticing loan offer. After putting considerable time and effort into preparing for financing, the buyer is presented with a loan of much less favorable terms, particularly a high interest rate. Often, the buyer accepts these new terms since so much has gone into the loan process, and the lender reaps a profit without doing anything outright illegal. 

6. The Lease Back Scheme
This type of scam also starts with promise of rescue. The owner can no longer afford the mortgage payments and a fake company offers to take over the mortgage. Facing foreclosure, the homeowner agrees to sign the deed over in exchange for the ability to continue living in the home as a renter, while the new homeowner is supposedly paying off the delinquent mortgage. The rent payments are promised to go toward buying the property back, with interest.

However, the scammer who took over the home typically pockets the rent, then disappears when the owner is evicted. In other instances, the scammer simply remortgages the home, cashes out the equity and skips town while it goes into foreclosure anyway.

Tips for Avoiding Mortgage Scams: 

1. Beware of anyone who asks you to pay a fee in exchange for counseling or help with a loan modification.

2. Do not sign over the deed to your property to anyone or any company unless you are working with your mortgage company directly to forgive your debt.

3. Never make a mortgage payment to anyone other than your mortgage company without their approval.

4. Never sign a document that you don’t understand.

5. Never leave any part of your application blank.

6. Never give out personal information over the phone when someone first contacts you.

7. If something sounds too good to be true, it probably IS too good to be true.

What should you do if you are the victim of a Scam?
File a complaint with the Federal Trade Commission (FTC). Visit the FTC’s online Complaint Assistant at ftc.gov/complaint, or call 1-877-FTC-HELP for assistance.

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RED ALERT - Urge Your Senator to VOTE NO on SB391!

Senate Pulls Dirty Trick!
Tries to Punish C.A.R. for Opposing Recording Tax by Holding C.A.R.’s Tax Relief Bill Hostage 

Call Your Senator NOW! Urge a NO Vote on Recording Tax 

In a surprise move last week, the Senate Appropriations Committee linked C.A.R SPONSORED bill, SB 30, which provides tax relief to those who are selling a home in a short sale to SB 391, a C.A.R.-opposed bill that creates a recording tax, using a shameful political maneuver to force C.A.R. to support the recording tax. As now linked, SB 30 can only become law if SB 391 becomes law. Once SB 391 is defeated, the link in SB 30 can be removed. PLEASE ACT NOW. THE VOTE COULD BE AS SOON AS NOON TUESDAY!!!

REALTORS® and the public should be OUTRAGED that distressed homeowners are being held hostage by Senate Leadership.

 Action Item 

CALL YOUR SENATOR TODAY

 Ask him or her to stand with REALTORS® and families and
VOTE NO ON SB 391!

CALL 1-800-969-3310Enter 200005264 to be connected

If you wish, you can bypass the first part of the message by entering your PIN, followed by the # sign, at any time. You may also bypass the 2^nd part of the message by hitting the “1” key to be directly connected to your legislator’s office. 

Here are detailed background and talking points on both bills. 

Background/Talking Points

C.A.R. is OPPOSING SB 391 (DeSaulnier) which imposes a recording TAX to generate funds for affordable housing programs. SB 391 creates a $75 per document recording TAX to fund the affordable housing trust.  C.A.R. is opposing this measure because it unfairly adds to the cost of recording real estate documents. C.A.R. is an aggressive advocate for affordable housing, but believes it is bad policy to fund affordable housing at the expense of homeowners who need to record real estate documents. The real issue is that this TAX is imposed only on real estate document recordings.  Affordable housing programs should be funded by the broadest base possible of California's citizens.

C.A.R. opposed the bill’s predecessor, SB 1220, last year until the bill was amended to exempt recordings that were part of a sales transaction.  Afterward, C.A.R. supported the measure, but it was defeated. Don't be misled by allegations that C.A.R. "changed its position" on SB 391.  C.A.R.'s Board of Directors considered SB 391 for the first time in May of this year; prior to that, C.A.R. did not take a position on SB 391.  The sponsors were advised of this process well before the bill was introduced. In May, the Board of Directors voted to oppose SB 391.

C.A.R. is opposing SB 391 because:

• SB 391 unfairly targets property owners who need to record real estate documents to pay for affordable housing programs. Affordable housing is an issue of broad social concern. While there may be a need for affordable housing funds, it is unfair to require only those individuals recording real estate documents to be the sources of that funding.             
• SB 391 is a recording TAX. While it may not apply to sale transactions, it still applies anytime a homeowner needs to record a document (e.g., refinancing, transferring into or out of a trust, liens, quit claim deeds, etc.).
• SB 391 provides no guidelines; it doesn’t prioritize affordable housing needs and requires little oversight. There is nothing in the bill that specifies how funds should be awarded and it provides little oversight as to the best uses of the funds. While it contains an audit requirement, that requirement doesn’t even kick in until the end of the program’s second year, when $1 billion could have already been distributed.  And, it’s “geographic” approach to distributing the funds doesn’t ensure the neediest Californians benefit from the program. 
• While C.A.R. aggressively supports the creation of homeownership opportunities, SB 391 is clearly not the way to achieve that goal. 

How to pump up your credit score

To avoid another real estate bubble, many lenders have tightened their mortgage requirements.  According to a report by the Federal Reserve, a majority of banks are less likely to offer loans to people with a FICO score of 620 and a 10 percent down payment than they were in 2006.  Lenders were also less likely to do so even for those with a score of 720.  The good news though is there are some tactics that consumers can employ to raise their scores.

Making sense of the story

• First, it is worth noting that median credit scores are rising, as people reduce debt and spend less in tight economic times.  Some 18 percent of Americans now have scores of 800 to 850, while 15 percent are below 550, according to FICO data.

• Often lenders will review FICO scores from the three big credit agencies, and they use the middle number to evaluate the borrower.  That number becomes the borrower’s “risk number.” 

• Borrowers can figure out their risk number by obtaining their three credit reports, available free once a year at AnnualCreditReport.com, and studying them carefully for errors or omissions.

• According to FICO, the two biggest factors in a credit score are payment history, which accounts for 35 percent of the score, and the amounts owed, accounting for 30 percent.

• Knowing that information, one can raise his/her credit score by reducing balances on credit cards.  However, if an account is in collection, it is too late to improve the credit score by paying it off.  The notation that an account is in collection is what lowers the score, so consumers may get more mileage by paying down active credit-card balances and other debts first.

• Though mistakes and bankruptcies may stay on a credit report for seven years, lenders will generally be more likely to overlook late payments that happened two or more years ago than more recent ones.

• Improving one’s credit score could take three to four months, or it could take as long as 18 months.

Posted with permission from C.A.R.'s Market Matter.

Six Must Haves for Mortgage Approval

Interest rates are hovering around historical lows, and low interest rates increase affordability, making it easier for buyers to qualify. Yet stories of buyers waiting months to gain loan approval and home purchase transactions not closing on time due to lender's strict underwriting are all too common.

Some buyers are turned down for illogical reasons. For instance, if you have investments -- even if they're performing well -- an underwriter might deny the mortgage because your portfolio doesn't fall into the underwriter's risk assessment model.

One couple was turned down because the husband had worked at his current job for less than a year -- even though he was making more money at the new job than he was before.

These buyers were well-qualified. The wife had worked several years for one employer and was able to qualify for the loan on her own. So, the transaction closed, although two months late. 

Generally, it's more difficult to qualify now than it was a year ago. Most conventional lenders require a 20-25 percent down payment. For the lowest interest rates, your credit scores need to be in the 700 range. You need to have verifiable income and cash reserves in addition to your down payment and closing costs.

You could run into underwriting problems if you're self-employed, as W-2 income is much easier to verify. Other hurdles are lapses in employment and owning a lot of property. Some lenders won't lend to buyers who have more than three or four residential properties.

If you're buying a new home before selling your current home, you'll need to have 30 percent equity in your current home. This needs to be verified by the lender's appraiser. Also, the lender will want to see a copy of the cashed check from the tenant for the first month's rent to verify rental income if needed to qualify.

HOUSE HUNTING TIP: As soon as you're serious about buying a home, find the best mortgage broker or loan agent you can to assist you. Don't make your selection based on interest rates alone. A good track record counts for a lot.

Closing the deal should be your primary goal. If you have to pay 0.25 percent more to assure your transaction closes on time and that you're not turned down at the last minute, it's worth it.

Be candid with your loan professional about anything in your financial picture that might impact loan qualification. A good loan agent or broker will be able to assess your financial situation and anticipate what you'll need to do to satisfy the underwriter.

Be aware that appraisal issues can impact your loan approval. For example, if a previous owner added square footage without a building permit, the additional square footage probably won't be included as livable square feet.

If the appraisal comes in for less than the purchase price, the lender might not lend you enough to close the deal. Include an appraisal contingency in your contract.

There are more jumbo financing options available now. Adjustable-rate mortgages that are fixed for 10 years and then revert to an adjustable have a starting rate about 0.25 percent less than a 30-year fixed jumbo. A five-year fixed starts about 0.5 percent to 0.75 percent lower, but is riskier.

THE CLOSING: Because of the risk factor, the lender may want you to have a large cash reserve. Your retirement account counts toward this.

Dian Hymer is a real estate broker with more than 30 years' experience and is a nationally syndicated real estate columnist and author.

Getting Ready to Buy a Home? Lender Do's & Don'ts

There are 4 things you should avoid doing prior to submitting a loan application, or during the loan process, according to Kevin Hauber of iMortgage. Any one of these things can greatly impact your ability to qualify for a mortgage loan, so it is critical to avoid doing any of these until AFTER your loan has closed escrow.

DO NOT PAY OFF BILLS
Your loan officer will advise you if it is necessary to pay off bills to help you qualify for a loan. They will also show you the best way to pay off bills to make sure we have the evidence we need to prove that the bills have been paid.

DO NOT CHANGE JOBS
Changing jobs before or during the loan process can create a real problem in qualifying you for a loan, particularly if the job is in a different line of work or at a lower rate of pay. During the loan process, it can also create time delays as the new job will need to be verified.

DO NOT MOVE YOUR MONEY
It is best to leave your money right where it is until your loan is closed. Moving your money toa new bank or even into a new account can wreak havoc with the verification process.

DO NOT MAKE MAJOR PURCHASES
Many borrowers make the mistake of buying a new car, some furniture, or making another major purchase without realizing the impact it can have on their ability to buy a home. A large monthly payment can affect the amount of home you qualify for and, during the loan process itself, actually make it extremely difficult to get your loan approved.

If you must do any of the things listed above (even if you've just been pre-qualified for a loan), contact your loan officer. They can help you by re-qualifying you if necessary and advise you of your options. By avoiding these four things, you can look forward to a successful loan closing.

For excellent service, contact:

Kevin Hauber
iMortgage
Direct Line 805-597-8844
Mobile 805-459-8844
Email Kevin.Hauber@imortgage.com