There is concern in the US that consumers are often victims
of predatory mortgage lending according to CNN. The main concern
is that mortgage brokers and lenders, while operating legally,
are dishonestly finding loopholes in the law to obtain additional
profit.
Some examples of predatory mortgage lending are:
- Encouraging applicants to include false information.
- Asking borrowers to leave signature lines blank.
- Failing to include Good Faith Estimates, Special Information
Booklet, Truth in Lending and Hud-1 Settlement statement.
- Convincing borrowers to refinance a loan several times and
each time increasing monthly payments or amounts owed.
- Loaning amounts higher than the value of the home.
- Not explaining unexpected costs at the settlement.
- Balloon loans: after a series of low payments the entire
loan balance is due in a large lump sum.
Another unethical practice involves inserting hidden clauses in contracts in which a borrower will unknowingly promise to pay the broker or lender to find him or her a mortgage whether or not the mortgage is closed. Though regarded as unethical by the National Association of Mortgage Brokers, this practice is perfectly legal. Often a dishonest lender will convince the consumer that he or she is signing an application and nothing else. Often the consumer will not hear again from the lender until after the time expires and then the consumer is forced to pay all costs. Potential borrowers may even be sued without having legal defense.
When a deal offered by a mortgage broker is too good to be true, it isn’t true. Did you ask whether there was an origination fee? Many lenders charge a 1% origination fee on top of points, and this in itself could account for the difference between this deal and the others.
Unless you shopped fees in addition to rate and points, there is a good chance that your mortgage broker intends to play "bait and remember" with you. "Bait and remember" is a game played by loan officers employed by lenders as well as by mortgage brokers. The game involves the mortgage broker or lender "remembering" fees that for some very regrettable reasons had not been mentioned before. Those skilled at this game can "read" a client accurately - that is, determine how much more they can get the client to pay without provoking a backlash.
There is also the possibility that the mortgage broker intends to play "bait and switch" with you. "Bait and switch" is the same game played by appliance merchants and others who advertise a low-ball price but when you arrive at the store they happen to be out of the advertised special and try to interest you in something else. The mortgage broker could have a dozen reasons why the advertised loan doesn’t work, e.g., you can’t qualify for it, the lender has gone out of business, etc.
The mortgage broker who can’t snag you with any of these ploys, will just let you dangle. There is always a possibility that market interest rates will drop, making the original low-ball bid workable.
The fact that you won’t refer the mortgage broker to your friends doesn’t matter because the broker doesn’t intend to be around long enough for it to matter.
Sharpsters who enter the mortgage brokerage business to make a quick score in refinancing, will disappear when the refinance boom fades away. Their aim is to acquire clients as fast as possible, and advertising really low-ball prices is an effective way to do that. If some of the respondents see through the game and drop out, others will not see through it, or will be reluctant to admit that they made a mistake.
