In Part I of this article, we covered six ways unscrupulous, unethical mortgage lenders might take advantage of consumers early in the mortgage process. But unfortunately, unfair advantage over the consumer and his wallet can just as easily occur prior to as well as after closing the mortgage loan as seen in the final six scenarios.

At or Prior-to Closing:

7) Changing the loan terms at closing: One of the most rampant abuses is to change the loan terms prior to closing. (As a mortgage borrower, I’ve had it attempted.) The consumer agrees to take a certain type of loan at a pre-determined interest rate, but at closing learns he’s expected to sign closing papers for a different interest rate and/or other set of loan guidelines. If the lender hesitates to provide the initial loan you qualified for, agreed to take and received the Good Faith estimate for, walk away, don’t look back and file a claim with federal authorities against the lender.

8) Requiring credit insurance: A predatory lender might claim that the only way a borrower can receive a loan (often being notified of this fact at the eleventh hour!) is to insure the loan against the death or incapacity of one or more of the borrowers. Loan comparison shopping between lenders can help avoid this. After the mortgage is closed---

9) Increasing interest charges when loan payments are late: Since a majority of borrowers never read the mortgage documents they sign, the first the consumer hears of this may be when he’s notified of the monthly payment increase. Reading all of the mortgage documents and/or having them interpreted for you by your own advisor/advocate is the safest route to avoid this.

10) Charging excessive prepayment penalties: This is often touted or “sold” by the lender as a way to receive a lower interest rate for the loan you’re seeking. Unfortunately, should you pay off the mortgage or have to sell the property (typically during the first five years of the loan) you’ll be hit with fees ranging from hundreds to thousands of dollars in prepayment penalties. While a lender might waive the penalty if you obtain a new mortgage from their company, short-term owners or those with uncertain ownership timeframes are best to avoid loans with prepayment penalties.

11) Failing to report good payment on borrower’s credit report: This may not appear to be a negative factor until you need the payment reference to establish good credit or to streamline your next mortgage application and closing. After making several payments on your loan, it’s wise to check your credit report to see if the lender has reported your payment history. If not, contact them in writing (saving a copy of the letter) and let them know you’d like it reported. Don’t wait until you need the credit reference to ask the lender to piece your payment record together since it may be incomplete or the request ignored entirely. And last, but not least,

12) Failing to provide accurate loan balance and payoff information: While this typically happens when you’re selling, it could require you to come up with extra cash outside of the formal closing in order to settle the mortgage debt and clear the title. In a related matter, some lenders drag their feet in providing payoff balances since prompt pay off (especially on a loan with a high rate of interest) is less money they’ll receive.

As with all industries, it’s only a small percentage of individuals in the mortgage business who take unfair advantage of consumers. Awareness campaigns like the Mortgage Banker Association’s push to educate consumers regarding unscrupulous mortgage practices are to be commended. To learn more about predatory lenders as well as become alert to various mortgage scams, visit the Mortgage Bankers Association of America’s excellent website at www.mbaa.org or contact them at (202) 557-2700, Monday through Friday from 9AM to 5PM EDT.

Published: September 15, 2000

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Julie Garton-Good, DREI “The Frugal HomeOwner™” As a syndicated newspaper columnist, author and international speaker, Julie Garton-Good DREI, C-CREC™, is called “America’s Home Affordability Expert”, addressing more than 25,000 persons annually on topics of real estate industry trends and home affordability. She is the author of five real estate books and is the sole two-time recipient of the international "Real Estate Educator of the Year" award from the Real Estate Educators Association. In 1997, The National Association of Realtors® nominated Julie as one of the fifty most influential people in the real estate industry. She shared the list with only three other women.