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REAL ESTATE REPORT
New Scams in Lending and Credit

The mortgage industry has always been rife with scams. When money plus debt plus consumer fears and greed (or both) are present, it creates a perfect climate for scam artists. That time is now! You must guard your private information such as social security numbers; passwords; financial information, etc. ID thieves are waiting and they are constantly coming up with new ways to trick you. There are several new scams of which you should make yourself aware.

Credit Repair: This is one of the fastest growing areas of consumer complaints. Everyone knows how important their credit score is, and for several reasons the thieves prey on this. Some credit repair companies offer amazing claims and charge low entry fees only to get your information. Think about it: they get you to pay them to steal your identity! Now, not all of these firms are bad, but you need to proceed with caution. Another trick is that they will dispute everything on your credit report. During the investigation period of the dispute, the credit scoring model temporarily ignores what is reported and "assumes" that everything disputed is perfect, giving you an artificially higher score for a few weeks. The repair firm will do this for a month or two so you think that your score really did improve. However, the credit bureaus will stop it after a period of time and your "true colors" will show through. Lenders have caught on and now, if you have more than 2 accounts on your credit report disputed, the automated system lenders use to underwrite your loan application will kick you out of the system. Your only hope then would be for a manual underwrite, but in this market, automatic underwriting is what everyone wants because of the "reps and warrants"-- essentially, the guarantees that the lenders make to FHA, Fannie Mae and Freddie Mac. The other trick that credit repair companies do is to set you up with a Federal ID number. This is the number that businesses are issued when they incorporate. The number of digits in a Federal ID number is exactly the same as the number of digits in a social security number. The problem is that if you are lucky enough to obtain credit with this new number, it is a commercial number and commercial debt can not be reported to the credit bureaus. So, you accomplish nothing personally but paying money for this endeavor.

Application Fees: You should never pay an application fee. Never! If you pay a firm up- front money just to tell you if they can help you, they’ve already made a profit. They may argue that the fee is for credit reports, an appraisal, and/or various fees, but the argument lacks merit. Few legitimate lenders will charge an application fee. The ones that do institute this to prevent you from shopping with another lender because they know that most people who pay a fee will not walk away from money spent, even if the rate and loan terms change at the last minute. There is an old adage: Fear of loss is stronger than desire to gain. Bottom line--do not pay any up front fees!

Blank Documents: You should never sign any documents that are blank, no matter how convincing the salesperson. People have signed blank "quit claim" deeds and lost their homes. Others found themselves at the settlement table staring at absurdly high fees which were filled in after the fact. The list goes on, but the fact remains, never sign anything that is blank.

Licenses: Just because a person claims that he is licensed, doesn't mean that you should accept his word. Most professional licenses cost money and require many hours each year of continuing education just to keep the license. That said, one should be required to show you this proof. Ask for a copy of his license, whether it is a loan officer; an appraiser; a realtor; a home improvement contractor, etc. In fact, go online to your state's licensing department and verify that what you were shown is indeed accurate. There are mortgage firms that either do not have the net worth, or the personal credit score or the clean personal record to obtain approval to do FHA and other loans. So that they do not miss out on the opportunity, they claim that they are FHA approved or approved with your state. If they are not, and the deal goes bad, you have no recourse as a consumer. Because of the rampant problems, almost every state is implementing new laws requiring that each loan officer be licensed. In fact, as part of the new Lending Law which President Bush just signed, ALL loan originators must be licensed nationally and for the first time ever, that includes bank, lender and credit union employees, not just mortgage brokers!

Dirty Deeds: When you apply for a loan, tell the loan officer how you want your home proceeds to be split in the event of your death. Few people ask and their deeds are recorded as Tenants by Entirety. This is a common way to record a deed and there is nothing wrong with it but think about this scenario: imagine a couple, both partners on their second marriages. If she dies first, should her new husband get the home proceeds or should her heirs get her half of the home? You want to be sure your intent is clear.

Another scary trend is when a loan officer (salesperson) is pushing a Reverse Mortgage and discovers that the wife is not 62 years old (that is the minimum age for a Reverse Mortgage). So, the loan officer could prey on the fears and ignorance of the couple and tell them that they can remove the wife from the deed and do the reverse mortgage in just the husband's name. This way, the loan officer will tell them that "you will have all of your payments go away and the wife can be added back to the deed when she turns 62." Convincing? Maybe. But if the husband dies or has to go into a nursing home before she turns 62, she will lose the home because she is no longer on the deed. Moreover, most states have a 5 year "look back" on any deed/ownership change. Be sure whomever you are dealing with is experienced and trustworthy.

Con artists are looking to come between you and your money. Your job is to protect your money and your identity. Remember, if it sounds too good to be true, it probably isn’t true.

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