The Mortgage Scam Checklist

The Mortgage Scam Checklist is 37 tip-offs you’re being lied to, scammed, or conned. Each tactic or statement is a mortgage scam designed to separate you from your money.

I’ve often been asked the question, “How can I tell a mortgage scam when I hear one?”

To answer that question, I put together the “The Mortgage Scam Checklist” for mortgage shoppers. To use the checklist, remember, if the company/loan officer you’re evaluating, possesses, says, or demonstrates any item on list….Run, Don’t Walk!

Well, here we go: The Mortgage Scam Checklist

Mortgage Scam 1. It’s a bank….you know Countrywide, Wells Fargo, Washington Mutual etc, Banks are not the low cost providers …big surprise, right! And they don’t have to disclose their overage (ie. YSP or SRP).

Mortgage Scam 2. They don’t have you sign anything…no application, good faith estimate etc. (self-explanatory)

Mortgage Scam 3. They have you sign blank documents. Signing blank documents is worse than no documents.

Mortgage Scam 4. They are a friend or family member…once you learn the truth, so long friend.

Mortgage Scam 5. They verbally lock loans…no lender lock confirmation. Failure to send lock confirmation is prima facia evidence of hiding the YSP.

Mortgage Scam 6. They play stupid or get irritated when you mention YSP (yield spread premium).

Mortgage Scam 7. They promote loans with a prepayment penalty. Prepayment penalties make more YSP per loan.

Mortgage Scam 8. They are uncomfortable or irritated discussing their compensation. Scammers can’t discuss and explain their total compensation without equivocation, run!

Mortgage Scam 9. They push ARMs (adjustable rate mortgages) when your hold period is 5 plus years or when the market has obviously changed to an increasing rate market.

Mortgage Scam 10. They push an interest only loan when your hold period is 5 plus years or when the market has obviously changed to an increasing rate market. Interest only loans typically are used to obfuscate the underlying adjustable rate.

Mortgage Scam 11. They push FHA and/or VA loans when they haven’t attempted a conventional approval first. Conventional lending now provide 100% and bruised credit programs which formerly were the main reason for the FHA and VA programs.

Mortgage Scam 12. They push a sub-prime or bruised credit loan without attempting an “A” credit loan first.

Mortgage Scam 13. They do not get immediate computer approval.

Mortgage Scam 14. They insist on a personal meeting for application designed to pressure you into signing.

Mortgage Scam 15. They promote a “fixed fee” or “No-Cost” loan….there is no such thing! Yield spread premium rate hiking will cost you thousands over the life of the loan.

Mortgage Scam 16. They won’t disclose their exact total compensation. This includes all revenue generated by origination fees, broker fees, processing fees, and all “back-end” compensation also known as yield spread premiums (for brokers) or service release premiums (for banks).

Mortgage Scam 17. They push an interest only loan and tell you to pay extra principal payments.

Mortgage Scam 18. They promote ARMs in an increasing interest market.

Mortgage Scam 19. They can’t explain how the index and margin come together to make a rate.

Mortgage Scam 20. They can’t explain what the initial, periodic, and lifetime caps are on an ARM.

Mortgage Scam 21. They don’t know the difference between a convertible and a non-convertible ARM.

Mortgage Scam 22. They push negative amortizing loans like the “pick-a-payment” or “option” ARMs so predominant in radio and TV advertising these days.

Mortgage Scam 23. They don’t know the difference between payment caps and rate caps on ARMs.

Mortgage Scam 24. They work part-time.

Mortgage Scam 25. They are new to the business and therefore lacking in experience.

Mortgage Scam 26. They were referred by a Website lead portal like LendingTree and others. These lending sites increase the cost of the loan. In the case of LendingTree, the increase cost is over $700!

Mortgage Scam 27. They were referred by a real estate agent. Scammers will probably be related to the loan officer or have some financial arrangement that will increase the cost of the loan for you.

Mortgage Scam 28. They work for the builder home loan company. See 27 above.

Mortgage Scam 29. They work for the real estate home loan company. See 27 above

Mortgage Scam 30. They are also your insurance agent or financial planner. See 27 above.

Mortgage Scam 31. They claim or allow you to assume, you can get the lowest rate simultaneously with a No-Cost or Flat Fee loan. An example is when you see a low rate on a Ditech commercial flashed right next to a flat fee offer of $395…they don’t go together, but you’ll only discover that after you call.

Mortgage Scam 32. They use massive TV or Radio Ad campaigns. The cost of those ads gets re-couped by increased cost to you most likely in the hidden form of yield spread premium.

Mortgage Scam 33. They collect a huge deposit. As in the case of Ditech, where they collect a NON-refundable $600!

Mortgage Scam 34. They quote you a rate without first gathering important, rate-changing information like, type of loan, credit score, loan-to-value, and income qualifying vs. stated income, etc.

Mortgage Scam 35. They don’t mention mortgage insurance when the loan to value is over 80%.

Mortgage Scam 36. They can’t get a loan done in less than 30 days.

Mortgage Scam 37. They push “pay off your credit cards with a Home Equity Loan” pitch. These loans are by definition ARMs usually based on the Prime Rate which changes with each Fed change…not good.

This checklist should be used with a healthy dose of common sense. I always tell folks to trust their instincts as well. Knowing that your BS alarm is going off at high volume should not be ignored. These points allow you to ask the loan officer the question, get the answer, and then listen for the alarm to sound.

Of course, if you don’t listen for the alarm and act on it, no amount of advice will help you.

Lastly, to insure you find a provider who won’t even dream of perpetrating a mortgage scam, check out The Mortgage Advantage mortgage shopping system.

Good Luck!

Author: Rob K. Blake
Published January 4, 2008