The Foreclosure Report

Home Loan Scams 'Proliferate'

The Contra Costa Times reports on the latest home loan scam. "As alternative mortgages proliferate, a real estate trade group is warning that a growing number of advertisements for such home or refinance loans are misleading consumers about their true costs. The Sacramento-based California Association of Mortgage Brokers issued the alert, its first concerning home loan ads, after it noticed a spike in flyers and faxes plugging the products as a means to pay off holiday debt."

"'They're being promoted by loan officers for their financial gain even when they're not in the best interest of the recipient,' said Cory Reid, president of the East Bay chapter of the CAMB."

"Many of the flyers trumpet rates between 1 percent and 2 percent, without noting the number goes up and refers to a payment rate rather than the actual interest rate. In other words, the borrower's debt would actually increase with every payment because it doesn't cover monthly interest on the loan, much less the principle. Other ads describe the 1 percent to 2 percent term as a 30-year fixed rate, which Reid said simply can't be true in today's interest environment."

"The flyers in question frequently target high-risk borrowers, those least able to afford loans whose payments swell over time and least likely to understand the complicated terms, with comes ons like 'no income verification,' 'bankruptcy- OK,' and 'bad credit= OK,' the CAMB said."

"The CAMB doesn't take issue with the products themselves, indeed many of its members arrange such loans. Instead, it's concerned that the ads and brokers distributing them don't properly educate consumers about the downsides and risks. 'It's very frustrating because I see too many people, buyers, getting sucked in by these ads,' despite being warned, said Scott Frazier, a mortgage broker in Livermore. 'They hear what they want to hear, and see what they want to see.'"

"In its press alert, the CAMB specifically cited two ads. The first proclaims, 'Christmas is over. Pay off that debt. Cash out to 125 percent,' and promises a 1.5 percent rate. The second flyer reads, 'Give yourself a fresh start in the New Year! Lower your payments up to 50 percent,' and promotes 'new rates as low as 1.75 percent.' The 1-800 number reached a Michigan call center."

"Many of the faxed ads, however, are of a different sort entirely. These businesses often aren't licensed by the department, or by any state agency, and the violations can prove challenging to address. 'Even trying to figure out who they are is very difficult,' William Moran said. 'Trying to chase down an 800 number, you can end up with a company based in Hong Kong.'"

posted by Ben Jones @ 6:25 AM