Top 10 Red Flag List for Mortgage Brokers

1. Shifting the closing date. The borrower's mortgage closing date can shift if the borrower does not have a written commitment from the lender. Homebuyers can find themselves in a default situation if they quit paying their existing mortgage based on an oral promise that the new loan will be closing quickly.
   
   
2. Offer a "free" refinance. Sometimes mortgage brokers will promise "free" refinances of a mortgage in the event mortgage rates drop further from the borrower's present mortgage interest rate. Every real estate closing has costs. While a mortgage broker may agree not to charge a fee, other closing costs may still arise. If such an offer is made, the borrower should get the offer signed and dated in writing.
   
   
3. Total reliance on the loan broker. The lender and the loan broker play different roles in the mortgage transaction. They are usually different, unrelated business entities. The borrower should know the lender's identity and receive a copy of the "locked loan rate commitment" from the lender in writing.
   
   
4. "Pre-approved" and "pre-qualified." These are marketing terms, not legal ones. The only legally binding mortgage loan commitment must be in writing from the lender and must contain specific terms, such as the mortgage loan dollar amount, the mortgage interest rate and the date the mortgage loan commitment expires.
   
   
5. Offer for a "free" real estate appraisal. Mortgage brokers may offer a "free" real estate appraisal under the condition that the borrower closes on a mortgage loan through their company. Borrowers should be prepared to pay for the appraisal if they decide to take their loan business elsewhere.
   
   
6. Falsified income. An unscrupulous loan broker may encourage the borrowers to falsify their income on the mortgage application. This is fraud. A buyer should never present false information. If buyers can't document their sources of income, they may be trying to purchase a property that is beyond their means.
   
   
7. Equity Stripping. This practice occurs when unscrupulous loan brokers may convince the borrower to continually refinance. All of the closing costs can be included in the total amount borrowed, resulting in the loan broker receiving a new commission and additional fees for closing each new loan.
   
   
8. Over-appraised residential real estate. This occurs when an unscrupulous loan broker, real estate appraiser and/or real estate agent collude to get a property appraised at a value grossly above its market value.
   
   
9. Undisclosed pre-payment penalties, balloon payments and rate and terms switched at closing. Loan terms are required to be disclosed early in the process. However, terms do change throughout the process. It is up to the borrower to stay on top of term changes that the borrower does not find acceptable.
   
   
10. Post-closing squeeze for more fees. The HUD-1 Settlement Statement must list all fees paid at the closing table or paid outside of closing. Anyone who calls the borrower after closing and tries to collect additional undisclosed fees is acting illegally. The borrower should also contact the Secretary of State's office to report such attempts.