Dana Evans, a 30-year-old entrepreneur, had no idea she’d be the victim of a scam by a mortgage company recommended by a friend. After locating an abandoned multiunit building she wanted to buy, Evans went to a mortgage company, where she qualified for a 203-K rehabilitation construction loan. The company then told her that she would have to use its contractors to bring the building up to code. It also stipulated that she hire its inspector, who convinced Evans to sign off on poor electrical wiring, inadequate support beams, and bad plumbing–work Evan’s untrained eye couldn’t evaluate.
When she, against the company’s protests, hired her own inspector, and then a lawyer, Evans was already out more than $33,000. She does admit that she was too trusting. “I should have done my homework,” she laments, “but I didn’t think they would be so dishonest.”
The Better Business Bureau reports that in the year 2000, 2,902 complaints were made against mortgage and escrow companies. Out of 1,000 types of businesses tracked, mortgage and escrow firms rank 30th in the number of complaints received. According to expert Joe Cuttone, president of American Fidelity Mortgage Services Inc. in Wheaton, Illinois, anyone who is thinking of purchasing a home, or even refinancing an existing one, needs to know what to watch out for.
“All fees are to be outlined on both the Good Faith Estimate, which states interest rate, amount of mortgage, and loan terms, as well as all fees, and the Truth in Lending form, which breaks down the total financial evaluation,” explains Alice Long, a processor for Citimortgage in Farmington Hills, Missouri. “It is mandated by law that a customer receive these forms within 72 hours of filling out the initial forms.”
These fees are technically only hidden from the consumer by how they are presented or explained. “When you receive the Truth in Lending forms,” explains Ingrid Compton, assistant manager of Fillmore Real Estate in Brooklyn, New York, “it is important to compare notes from your initial meetings to make sure everything is presented exactly how you previously discussed it.”
Prospective home buyers with poor credit ratings are considered high-risk customers. Unfortunately, they are the most at risk for unscrupulous lending practices. There are mortgage companies that target these clients specifically because they are easy marks for excessive fees. One way to raise the cost of a mortgage loan to the consumer is by charging high points on the loan. Since one point equals 1% of the loan amount, what is a fair amount of points to charge? “One percent to 3%, depending on the size of the loan,” says Cuttone. There are mortgage lenders who will charge up to 7%.
BAIT AND SWITCH
Claire Thorp, a representative of the Office of Banks and Real Estate, an Illinois state government agency that works to protect and inform consumers, says that a lender who baits a customer with a fair set of mortgage terms but later attempts to switch to more expensive terms (which could actually be