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How do you compete against fraud?

By
Mortgage and Lending with American Home Mortgage

The question: How do you compete against fraud?  The answer: I haven't the foggiest!!

I recently pre-qualified a client for a $115,000 purchase and that was at the very high end of the purchasing scale based this borrowers scenario.  I enrolled her into a web based home finding service.  I received a message from my client stating that she talked with another loan officer and he had pre-qualified her up to $225,000.  My client said "he told me that all I needed to do was tell him how much money I made and didn't have to prove it - do you have a program like that?"  

Now this client worked full time grossing just about $2,000/month.  My Realtor didn't know what to do.  He told her to be careful about getting in over her head but she wouldn't have it. 

The problem is since she was told she could purchase a 225k home, that is all she is interested in.  I told her if she did purchase a 225k home, she would be commiting mortgage fraud.  She hung up on me.  

SO.... I ask the question again, how do you compete against fraud?  Maybe the question should be, how long is it going to take before this type of lender simply goes away?   Until us ethical lenders can educate everybody that falls for the "if its to good to be true....." type of deal, I fear we will continue to battle this scenario.  

I KNOW I am not alone on this island.....well at least I think I am not - am I? 

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Colorado Springs Real Estate
Colorado Springs, CO

Toby,

You did the right thing. Grossing $2000 a month is not going to cover a 225K mortgage. Some people just cannot face reality.

May 02, 2007 01:31 AM
Flemington, NJ
You can contact the LO doing the deal, explain how 1 loan isn't worth ruining this persons credit and creating a foreclosure.  You can call his/her boss. You can call the State Banking Commission. 
May 02, 2007 01:34 AM
Toby Riley
American Home Mortgage - Ann Arbor, MI

I agree Dan.  Now the question beckons - if this client does indeed purchase a home worth 225k, do I forget it or pursue "turning everyone in" on the basis of fraud?  I am of the opinion that if we just let it happen, it will continue to happen. 

Toby

May 02, 2007 01:36 AM
Don Carter
All Star Mortgage, LLC - Haverhill, MA
Hi Toby, this is a problem in our industry, and I share your frustration as you search for an answer.  Naturally, the short answer is you can't compete with fraud or deceit.  If you're talking with a client who can't or won't understand simple math and logic, it's probably not a client you want anyway.  On the larger issue, if honest and ethical brokers remain silent when confronted with cases of potential fraud, ultimately we'll be leaving the problem to legislators to solve.  They will almost certainly come up with some piece of short sighted legislation that hurt us all without actually curbing the problem. 
May 02, 2007 01:56 AM
Russ Msrtin
Perl Mortgage - Chicago, IL
Residential Mortgage Advisor

What is going to happen is that this person will buy the $225k house and then it will go into foreclosure.  Then, she is going to be all over the newspapers crying about how she should have never gotten the loan in the first place and how a predatory lender took advantage of her.  Then some boot licking politician is going to ride in on a white horse to save the day with a dumb anti-predatory lending law.  Of course, what will be conveniently left out is that she was counseled that she couldn't afford the home on several occassions, but kept looking for a loan officer who would tell her what she wanted to hear and was willing to commit mortgage fraud (along with her) by inflating her income.  Anyone with two brain cells, even if they were fighting each other, would know they can't afford a $225k house on $2k income.

A bigger question would be if you told the Realtor, why would this Realtor continue to work with this person.  They are just as complicit as the other loan officer and the client. 

Unfortunately, there is nothing you can do about it but sleep well at night knowing your name isn't on the 1003.

May 02, 2007 02:00 AM
Dennis Serra
Meridian Business Group - Schaumburg, IL

I wouldn't have thrown out the word "Fraud" to the client.  I would be thinking it.  The approach I take is to try and get them to fess up more about the loan they are getting into and see if the other LO gave them a payment amount.  I let them know that there is nothing new under the sun and I want to make sure they are getting a good deal.

If I know the payment amount I can assess the rate/program (I/O, Option ARM).  If it is an option ARM it easy enough to explain exactly how it works and 9 times out of 10 that is enough for a borrower to change their mind.

You can't win them all as some shoppers want to believe the outrageous offer and no amount of talking can convince them to investigate it further.  It's as if they know they are being railroaded, but they have to go to the closing to make sure.

If you know when they were scheduled to close call them just before and see if they are getting everything they were promised.  Call them after as well.  You may get them back after all is said and done, but they won't reach out to you because they would be embarrassed to admit they were wrong.  Sympathize and get them on the right track.

May 02, 2007 02:41 AM