Signs of a BAD Loan...

[Ravenous Wolf]

Here is an interesting article from Bankrate.com

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7 ways to spot a shady mortgage lender
Too-good-to-be-true rates, rock-bottom fees? Tread carefully as you refinance, especially if you have less-than-perfect credit.

By Jay MacDonald, Bankrate.com

Johnny Bell had a new deck and other home improvements in mind when he refinanced his home in Oxford, Miss., last summer.

Make that almost refinanced.

Bell spotted attractive terms on a television ad, contacted the lender and locked in a cash-out refi at 5.125% with $350 upfront as a processing fee toward a 45-day closing.

Then trouble began. First, the company delayed the closing, saying it was behind on the paperwork. Then it asked for proof of reserve funds and Bell complied. After 90 days, the company informed Bell that his "locked" rate had gone up to 6.2%.

"I got angry," Bell recalls. "I told them I was definitely not paying more interest. They started making excuses for why it had taken so long, putting the blame on Fannie Mae for requiring the reserves. But the interest rate didn't have anything to do with the reserves."

After two more months of futile telephone calls, Bell walked away from the deal, received his $350 back and built his deck out of pocket.

"It was bait and switch," he said. "It took me five months to not refinance."

Signs of a bad loan
Bell's experience isn't isolated. For the last couple of years, low interest rates, aggressive marketing tactics, scant industry oversight and investors who want to put their money into real estate instead of the stock market have contributed to the ideal operating environment for predatory lenders.

In many cases, it's all too easy for a trusting homeowner anxious to leverage a home's value or lock up a low rate to fall prey to less-than-upfront lenders. W.C. Fields maintained that you can't cheat an honest man. But when it seems that everyone is getting a loan and you've been promised rock-bottom interest rates and negligible fees, it's hard to resist.

Some deals, however, are indeed too good to be true.

According to the Federal Trade Commission, you may be signing on for trouble if a lender:

 Encourages you to falsify your application information to get the loan.
 Urges you to borrow more than you need.
 Pushes you to accept payment terms that you can't realistically meet.
 Fails to give you the required disclosures (e.g., APR, rescission rights, etc.).
 Shows up at closing with a totally different loan product than you agreed to.
 Asks you to sign blank forms. ("It'll speed things up. We'll fill in the blanks later, trust me.")
 Denies you copies of documents you signed.

And if you miss a warning sign early in the process, a bad loan often resembles the Tar Baby from an Uncle Remus story: The further in you get, the harder it can be to get out. Bad lenders are counting on the likelihood that the farther you travel down the loan-process road, the more you will have invested in earnest money, deposits, inspection fees, design plans and contingencies that accelerate your momentum to close.

Chicago real estate attorney Tom Polinski recalls a recent closing where the buyers found out that their lock had expired four days earlier and their interest rate would be 1.5% higher.

"We were at the closing table, and they didn't want to walk away. Had they done that, they would have been in breach of contract and the seller would have had to decide if he wanted to sue them for specific performance because he, in turn, was buying another house. You always get that domino effect. It would have been a mess," he says.

With little recourse, the buyers settled for a $750 reduction in fees and closed, vowing to refi at the earliest opportunity.

"I see a lot of it," Polinski admits. "I can't tell you the last time I went to a closing where the buyer has known a reasonable time in advance, even 24 hours or more, what their bottom-line closing costs were going to be. The lenders are notoriously slow in getting those figures to the closing, so we have to try to estimate what the buyer is going to need. And estimate on the high side, because if it's short, they won't let you close."

Preying on the powerless
Predatory lending practices are most visible in the subprime market, which serves lower-income individuals with credit problems.

Respectable subprime lenders serve an important social function by offering credit on fair terms to individuals who otherwise might never be able to build home equity. Predatory lenders, however, are a scourge on these same neighborhoods, taking advantage of elderly, less-educated and non-English-speaking individuals by offering egregious loan terms that would drain equity and eventually lead to foreclosure on their homes.

Norma Garcia, senior attorney for the nonprofit Consumers Union, has been fighting for more than a decade to stop predatory lenders from preying on the powerless. In her March testimony before the House Committee on Financial Services, Garcia expressed concern at the tremendous growth of the subprime market in general and subprime refis in particular.

Nationally, subprime originations increased from less than 5% ($35 billion) in 1994 to nearly 13% ($160 billion) in 1999. The predatory hot spots, Texas and California, were even worse: Texas subprime refis grew from 6% of all refis in 1997 to 33% in 2000, California subprime lending grew from 4% in 1993 to 20% in 2000.

"Not all subprime loans are predatory," Garcia points out, "but virtually every predatory loan we have seen is a subprime loan."

That's because shady lenders, like predators everywhere, tend to target the easiest prey, people with poor credit who have few other options. But Garcia notes that individuals with spotless credit also fall victim to bad loans.

"Loans that are good subprime loans might in another sense be predatory for someone who has good credit. We see this a lot among the elderly and in communities of color -- people with perfectly good credit who don't have a sense of what's happening out there in the lending world," she says.

Garcia says that to simply spout "buyer beware" isn't enough.

"There are definitely people who are ripping others off. To the extent that there are individuals who are being placed in loans with interest rates and fixed fees that are much higher compared to that person's credit-risk profile, that should be a crime," she says.

"Some states require lenders to put borrowers into the best loans for which that buyer may qualify. We would love to have that be extended to all loans, but it isn't and there is a lot of resistance and pushback from the lending lobby to protect against new laws aimed at regulating the industry."

California is currently in the midst of a test case to see if a weaker state anti-predator statute should supersede a tougher ordinance passed by the city of Oakland that fills in the gaps left by the state law. Garcia has similar concerns about any minimum industry standards that could one day be forthcoming at the federal level.

"We can see that minimum standards might be a good thing, but we don't want to prevent states that have serious problems from closing the gap," she says.

Firing the 'bad actors'
The mortgage industry has dug in its heels against government regulation at any level that would restrict access to credit.

A.W. Pickel, president of the National Association of Mortgage Brokers, says a few "bad actors" shouldn't spoil it for an industry that is committed to providing as many financing options to as many customers as possible. In addition to calling for more pre- and post-license training, NAMB has put forth its own solution to the predator problem.

"We promote the ability to do a national registry that would basically keep bad guys out of the business," he says. "For instance, we now actually register every loan officer. Unfortunately, we don't register loan officers inside a bank. So you could have a bad actor who would be working for a licensed broker or mortgage broker but then they go to a bank and they don't have to be licensed."

Although Pickel admits he would never use an online lender, he defends their right to peddle their products. The problem, he says, is not the shady deals, but the public's inability to accept what mortgage brokers take for granted: If it seems too good to be true, it probably is.

"What amazes me is that people don't use their common sense. Somehow people think that this person who is giving them 5% is telling the truth when everybody else in town doesn't have it. You ought to call guys in your local community and check their references. Even in your own community, you want them to put it in writing. You want them to stand by their word."

[firstsource]

Thanks WOLF:
This is a good article to read.
Charles

[admin]

Used to see it all the time...

[ghacorp]

If any reader has a current loan with AmSouth Bank, a financial institution based in Birmingham, AL with locations in Schaumburg, IL, I would like to announce a group has been formed for possible consideration of class action status against AmSouth Bank and against its mortgage servicer, Dovenmuhle Corporation based in Schaumburg, IL. This institution is alleged to be involved in unlawful, deceptive and eggregious practices with regard to loan calculations, bogus fees, etc.

Those of you who do not currently do business with AmSouth Bank, consider taking your business elsewhere! It is my personal belief this institution exists for its own self-serving benefit and is not committed to customers.

E-Mail should be addressed to ghacorp@msn.com

[peabody]

hehe funny you mention amsouth. we are leaving amsouth for charging us NSF fees even though we have the money in the bank. The way they explained it to me on their operating procedure is for instance if you use your debt card at a gas station pump. The pump doesnt know how much your giong to pump into your tank so it earmarks 50 bucks to pay for the gas.. and lets say you only have 40 bucks in the bank but you pump 30 dollars total in gas... so even though you have 40 bucks in the bank and you only pumped 30 dollars in gas you would think your account would be ok ... WRONG NSF ... since the gas station earmarked 50 bucks on your account when you inserted your debt card amsouth uses that amount to stick ya..

Also they play the pull back paid checks and debts that have been paid already to pay for a big check .. than turn around and bounce all the little checks.. I have had this happen to me a few times with amsouth .. lets say i have 100 bucks in my account .. i write 9 checks for 10 bucks apiece and they get paid .. 3 days later i write a check for 25 dollars which overdraws my account by 15 dollars ..... amsouth does and will pull back the money for the 9 10 dollar checks... bounce every one of them 32 NFS for each so around 300 dollars in NFS fees pay the 25 dollar check and than take all the money that left over to pay for part of the NFS fees .. so ya end up owing them around 400 bucks when its all said and done

[jimdiamond]

just curious...but why are you writing bad checks and overdrawing your account?

[mattandallismom]

Originally Posted by peabody

we are leaving amsouth for charging us NSF fees even though we have the money in the bank. The way they explained it to me on their operating procedure is for instance if you use your debt card at a gas station pump. The pump doesnt know how much your giong to pump into your tank so it earmarks 50 bucks to pay for the gas.. and lets say you only have 40 bucks in the bank but you pump 30 dollars total in gas... so even though you have 40 bucks in the bank and you only pumped 30 dollars in gas you would think your account would be ok ... WRONG NSF ... since the gas station earmarked 50 bucks on your account when you inserted your debt card amsouth uses that amount to stick ya..

It's the gas station that authorized that amount, not your bank.

That was a very interesting article. I'm keeping my eyes wide open when we refinance.

[swtguy]

Originally Posted by mattandallismom

It's the gas station that authorized that amount, not your bank.

That was a very interesting article. I'm keeping my eyes wide open when we refinance.

All of the gas stations that I use only authorize $1 and then later settle at the actual cost. So, I'd look further to see if it's the gas station that's puting through an authorization for $50 (and if so, go to another gas station that doesn't). If it's the bank "holding" funds based on $1 authorizations that are sent through, I'd look seriously at the Uniform Commercial Code wrongful dishonor section.

Also guys, I'd watch out for Citibank's shady practices. Recently Citibank has changed the order of it's check clearing for Texas customers (they now clear the lowest dollar amount first); however, they are placing holds on signature-based debit card authorizations that have not cleared and instead returning transactions and collecting fees. There's nowhere in their overdraft policy that states that they will place a hold on transactions that have yet to be presented for payment (i.e., signature-based transactions). This is a matter of bitter contention between the bank and I as of late. By the way, had they not held funds based on signature-based transactions contrary to their own policy, I would have had no overdrafts.

[Sultan]

Thank you for this sticky.

I'd like to contribute; (I posted this in another thread I'll ad it here as well)

IMO, (not all of them and I'm sure there are some honest and ethical ones on this site) realtor's, and brokers often (especially in high priced states like California) take advantage of peoples lack of knowledge of their rights and end up ripping them off, this is a very serious form of white collar crime, they often get away with murder and their is very little accountability or government enforcement, the best thing with for now with this problem is prevention.

If you've ever heard anyone say attorney's can be crooks, you need to take a look further to the realtor's and brokers who charge a mint (including many padded and bogus expenses) for something many savvy consumers can do for themselves.

Again there are obviously trustworthy and ethical realtor's, agents, brokers etc. The best thing is to find someone that someone you trust has had previous positive experience with, not just someone you feel 'good' about, these are sales people and some of them are expert at deception.

Whats the old saying? "theres a sucker born every minute"

[rainelli]

this is what I need to know!since I am new in this field I admit I need a lot of things to learn,thank you for posting it here...this makes me aware..

[loanmod]

This is really good article. I like your all 7 ways that you mention. This is one of the good and helpful article.

[Austin]

I appreciate the article that is source of information about signs of bad loan you r applying for . Every one should read it and hope that get knowledge under what circumstances people should apply for loan and then signing it and what are the terms and condition on loan.