Protecting Yourself from Mortgage Fraud
Although some of the problems that led to the 2008 housing crisis were the result of people buying more house than they could afford, at least some of it was the result of fraud. Not just people falsifying their own income figures, but also people in real estate and mortgage companies altering people's applications to inflate their income figures to qualify for loans they couldn't possibly afford. The people who were putting fake figures over other people's signatures weren't worried about what would happen when their victims inevitably fell behind on their mortgages, since the mortgages would have long since been sold off, bundled into mortgage-based securities, and become somebody else's problem.
But the rampant fraud associated with mortgage-based securities isn't the only kind of mortgage fraud out there. While it may have been easier to play games with esoteric financial instruments, an appalling amount of mortgage fraud still involves very basic tricks which gull people into mortgages they can't afford. For instance, crooked real estate agents, appraisers, and loan officers can collude to artificially inflate a property's actual value and stick someone with an inordinately large mortgage at a very high interest rate so they can pocket bigger commissions.
How can you protect yourself against these kinds of scams? The first thing to do is to trust your gut. For this scam to be pulled off, you're going to have to deal with all three of the dishonest people who are in on the scheme. With so many crooked fingers in the pie, somebody is eventually going to say or do something that doesn't quite square up. Keep your eyes and ears open, and if something sets off your BS meter, start asking questions.
Don't just question the people you're dealing with, because they may well be touching base behind the scenes to make sure they keep their stories straight. Get reality checks from people elsewhere. Compare the appraised value of the property you're looking at with what comparable properties in the area have sold for in the last few months. If necessary, get an independent appraiser to look at the property, or talk to loan officers at other institutions. If your real estate agent starts getting huffy about your talking to other people, dump him or her like a stone. Your financial future is on the line here, so don't put it at risk to save face for someone who may not have your best interests at heart.
If your real estate agent insists that you must use a particular lender in order to buy through him or her, this is a red flag that something may well be going on under the table. Inform the real estate agent that you've shopped around and are going to go with a different lender that is giving you the best deal, and if the agent has a problem with this, deal's off.
Also, know how much you can afford before you even start house-hunting. In days gone by, real estate agents and lenders worked with prospective buyers to determine how much they could safely afford. Now, far too many real estate agents and loan officers have their eyes on the commission and nothing else. Lenders especially are apt to talk really big about all kinds of creative financing that will enable you to get a bigger loan. Some of it is actually downright illegal (such as borrowing money to make your down payment and presenting it as if it were actual savings), and others are technically legal but extremely unwise.
One nasty way to get people convinced that they can afford a bigger house payment than they should take on is to rush them through the process of determining their monthly expenses, brushing over important things like pro-rated shares of non-monthly bills such as car insurance, let alone setting money aside for emergencies or routine home maintenance. Thus, you need to spend some time seeing where your money is going and just how much house you really can afford, so you can avoid this sort of smooth-talking.
One thing should be plain common sense, but you'd be surprised how many people overlook it. Make sure you get copies of everything you sign. If you don't, demand them, and don't sign another document until copies are forthcoming of what you've already signed. Even after the deal is closed, if you feel you’ve signed something less than honest, take the documents to another lender or to a lawyer to have them looked over. Most states have a "cooling off" period in which a contract can still be broken if it is questionable.
Keep an eye out for real estate scams targeting the elderly. They tend to be more trusting of people who present well than younger people, and tend to take people at their word. Many of these scammers will target people who've rented all their lives because they moved frequently and are buying for the first time because they're finally going to settle down into a retirement home. Because they don't know how real estate deals normally work, these people are particularly vulnerable to such scams.
Scammers have been a part of the real estate industry for as long as there has been swampland in Florida or a bridge in Brooklyn to sell. They aren't going anywhere (except hopefully for a long stay courtesy of the Federal corrections system) so you have to know the danger signs and be ready to dump a real estate agent or loan officer, even if "he seems like such a nice guy."
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