The attorney looked concerned. Four of his clients had been approved for a loan by the same mortgage broker. And now that mortgage broker was being investigated for loan fraud.
The attorney was worried because these four clients were going to have their loans reverified. That is, the end lender was going back into the application files to look at all of the supporting documentation. All of the attorney’s clients had signed blank application forms that the mortgage broker later filled in. And in all of the cases the mortgage broker had “amplified” the numbers, even though the home buyers would’ve qualified on their own financial strength.
Annie is a home health care worker. When it came time to purchase a home, she went to a mortgage broker whom she knew from her church. She was promised a jumbo loan at a rate of just 7.5 percent, with three points. A few days before the closing, the lender said she couldn’t close on that loan, but could get Annie a loan at 10 percent, with five points.
Every day, unscrupulous lenders ask borrowers to sign blank mortgage applications. They ask borrowers to overstate their income and to enhance their work history. They advertise that they can help when no one else can and then pocket hefty fees from grateful borrowers when the loans close. They pull the classic “bait and switch.”
These are the kinds mortgage lenders that give lending a bad name. Unfortunately, many of the bad apples flourish in the inner cities, where they can prey upon would-be first-time buyers who either don’t know they have other choices, or who believe it when told this is their last chance at a piece of the American dream.
That’s not to say shoddy lending practices don’t exist elsewhere. They do. And because a home remains the single largest item you’re ever going to purchase or sell, it makes sense to think through your choice of mortgage and lender as carefully as you will examine the home before you write up an offer.
Consider these mortgage commandments before you sign a loan application:
- Know thy lender. It’s not enough to get a recommendation from a friend, or to even use someone simply because they attend the same house of worship. As Annie found out, the mortgage lender in her church didn’t practice what was preached.
Ask around to get a few names, and then talk to people who have actually closed on a home with your prospective lender. Ask them if they had a good or a bad experience. Annie’s sister used this lender, and gave her the phone number. Annie wrongly assumed her sister had had a good experience. She never asked the question.
If you have any questions about whether or not the lender can really fund the loan, get it in writing. That way you can at least fall back to what was committed to on paper.
- Thou shalt not sign a blank mortgage application. The only application you should sign is the one that you’ve filled out yourself. Then check it over before putting on your John Hancock. Before you leave the lender’s office, ask for a copy of the filled-in, signed application.
Once you’ve signed a mortgage application, you’re stating that the information is correct. If you’ve knowingly put down false information, you may have committed fraud, which can carry stiff penalties, including a jail term. Uncle Sam takes this stuff seriously.
- Don’t believe everything the mortgage broker tells you. If the mortgage broker tells you it’s okay for him or her to lend you $5,000 for 15 minutes to pad your bank account, and then goes with you to the bank, deposits the check, waits for an account statement showing the deposit, and then withdraws the money — you’ve got a bigger problem than an empty bank account.
Other than asking for supporting documentation or making suggestions on how you might improve your credit, the lender shouldn’t have anything to do with your financial life. If something seems abnormal to you, question it. If the answer you’re given seems even stranger, it may be time to find a different lender.
- If the going gets tough, consult a higher authority. If your lender offers to put money into your bank account, asks you to sign a blank application, offers to make changes in your credit history for a separate fee, won’t commit in writing to funding your mortgage, or doesn’t give you your good faith estimate within three working days of applying for a loan, put in a call to the agency that regulates mortgage lenders in your state.
By being savvy enough to know when you’re being given the run-around, you’ll avoid being hurt when it really counts — at the closing.