Prevention is the key to finding a cure for this industry-wide disease.
If we can spot the warning signs, and stop a fraudulent mortgage loan before it goes through, we are half the way to beating the frauds at their own game.
To more effectively and efficiently detect such signs of fraud, you should use a pre-funding warning system, which includes documents or items in the file that warrant questioning. These are questions that must be addressed prior to funding a loan. These are not always fraud-related. Sometimes, a question in one document will be answered with information in another.
In a white paper on mortgage fraud, author Patrick Crowley explains, 'Many law enforcement officials, mortgage lenders, industry experts, security companies and other agree that the best way to fight fraud is a multi-tiered approach that includes cooperation between the industry and law enforcement, quality control measures enhanced through technology, a better method to report mortgage fraud and tougher laws.'
One part of this multi-tiered approach is us, as an industry. We need to step up our own brand of self-enforcement.
Real Estate licensees Should Help Homeowners Protect Themselves Against Fraud
Contact the credit reporting agencies directly and request a credit report.
Check your credit report yearly and make sure no false loans are appearing. You have the option of receiving one free credit report each calendar year.
Verify that you are listed as the exclusive owner of your home or land. Call the customer service department of your title company, and they will be able to verify your status and provide any recorded documents requested.
Check your tax bill. This is one of the easiest things to do. Your status as the true owner of the home should be verified on each tax bill you receive.
Make a habit of shredding any documents or mail items that include any of your personal information before placing it in your trash. That will deter anyone from sifting through your trash for information.
As a general rule, always be careful who you allow to have access to your identifying information. Be sure to verify your status as the property owner yearly, and when it comes time to buy or sell a home, works with your escrow practitioner to be sure the transaction is smooth.
Check out the mortgage lender you are about to do business with. Check with the local Better Business Bureau and check online for any negative reports or postings about the lender.
Have the mortgage lender give you a quote to include interest rate and fees associated with the mortgage before running your credit report. This will allow you to get a reasonable idea of interest rates and fees before actually making formal application. Borrowers should be honest with the lender about what they think their credit is. You should not allow the lender to obtain their credit report and should not pay any up-front fees for the quotes.
Once they make a formal application for a mortgage (using the 1003 Loan Application), inform the lender that they are required by Federal Law to provide a Truth in Lending Statement and a Good Faith Estimate within three business days of making application for the mortgage.
Once you get the Good Faith Estimate and Truth in Lending Statement, the lender should put in writing if they are getting a fee back for increasing the homeowners interest rate over the best interest available, also known as a yield spread premium. The yield spread premiums are the number one source of overcharges in the mortgage industry, and consumers need to understand that if the lender gets a yield spread kickback, the borrower/consumer will end up with a higher monthly mortgage payment.
The lender should also confirm that there will not be a pre-payment penalty associated with the mortgage. The homeowner should then require the lender to put these two items in writing via a formal letter or e-mail. If the lender is unwilling to make these two disclosures, find another mortgage lender.
The number one cause for alarm - home appraisers who, for years have been forced by real estate agents, mortgage lenders, or home builders to come up with real estate appraisal values that are not realistic or not based on reality. We call this the train wreck that was waiting to happen.
Click Here for more information on our recently updated Mortgage Fraud class online, available for 6 hours of MRE, Master of Real Estate Credit and Continuing Education credit in some states. We also offer many discounts on Twitter or Facebook. VanEd also now offers a full package of MLO Continuing Education courses online including the Colorado 2-hour MLO Mandatory Course. Click Here for info!
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