It seems like every day we read about another mortgage company being taken down for fraudulent activities. As the market tightens, banks have begun raising their standards for those people that can qualify for a mortgage. This affects the many mortgage companies and brokers that made their living by helping people who were turned down by traditional banks get mortgages. Those days are gone, smaller mortgage companies and brokers are now are forced to sell the exact same products that they larger banks are selling.
This basically means, that in most cases, consumers aren’t any better off using a broker than they are walking into a regular bank. Don’t get me wrong, smaller brokers and mortgage companies still offer a personal experience that the larger banks can’t offer. The smaller brokers will work harder on your loan and know which banks to place your mortgage with. However, for the “plain Jane” consumer, who has great credit and plenty of equity, there really is very little incentive for them to use a broker any longer. This segment of the market was a huge part of the smaller mortgage companies business. Unfortunately, when business tightens, this tends to force the rats out of the wood-work, and that’s why we decided to write this article.
1) Blank or incomplete paperwork – I know this sounds like a no-brainer, however you would be surprised how many times this happens. Mortgage companies are required to give the borrower two sets of paperwork, one before the customer commits to the loan and another set before the borrower closes. The first set of paperwork is an estimate based on the facts that the loan officer (LO) has so far. The second set is the factual numbers that you will be obligated to once you sign them.
Dishonest LO’s will have customers sign a blank or incomplete disclosure package after winning their trust. They use excuses like ” the numbers will change anyway, don’t worry about these pages” or “we wont know the real figures will be until we get the appraisal back.” They will usually give you a verbal rate and payment quote and ask you to sign the application and RESPA disclosures blank. If you are asked to sign blank papers, don’t walk away from that mortgage company, run. Your closing figures will be higher than you ever imagined, and you will be forced with the decision to close a bad mortgage, or begin the mortgage process again.
If you are asked to sign incomplete disclosures, it could simply be an honest omission, however, do not sign anything until they are completed. Having a completed disclosure package gives you the ability to compare what you have been promised with what the numbers actually are. This forces the LO to explain the discrepancies instead of dismissing their higher rates or fees with a flimsy excuse.
2) They insist on using their title company or attorney to close the loan – I don’t know if you’ve ever noticed, but when you see the mortgage guys in handcuffs on the news, the closing attorneys are usually right behind them. An often overlooked piece of paper that borrowers are asked to sign, prior to initiating a mortgage, is a disclosure that informs them that they have the right to choose their own closing agent. Most mortgage companies, honest and crooked, will suggest or assume, that you will be using their closing company.
The most common reason is that they simply have a good system set up with their closing company that allows them to close loans efficiently. Their company usually IS quicker and competitive with the market, however some are not. A good test to see if your mortgage company and title company are in cahoots is to ask your LO for a copy of his closing companies rate sheet so that you can compare prices. If the LO tells you that you HAVE to use their company, or is pushy about using their closing agent, run. A good LO and mortgage company will KNOW that it’s your right to choose your own closing agent. They also know that if they ignore your request that they will be in violation of RESPA laws and could lose their license.
3) Department of banking and finance information doesn’t match – Every state has a department of banking and finance that regulates mortgage companies. When a mortgage company applies for a license in each state they have to provide their contact information, physical address and name of the entity or person that holds the license. All of this information are public records and can usually be found online. This website (http://www.consumeraction.gov/banking.shtml) lists each state’s department of banking and finance websites.
If you go to this website you can compare the address on the license to the address that the mortgage company provides you. If the addresses are different this could be a warning sign. If the name of the license holder, or the company is different than the company you have been told, I suggest that you make a call to the department of banking and finance before proceeding.
I also suggest, that before you begin a mortgage with any mortgage company that you establish their company name, address and how long they have been in business. Doing this allows you to accurately compare their public information.