Knowing about fraud but doing nothing about it can jeopardize your reputation — and even your freedom. However, there are a number of steps an originator can take to ensure that fraudulent loan files don’t land him or her in jail.
Every year, misinformed home buyers, often first-time purchasers or seniors, become victims of predatory lending or loan fraud. They are tempted by a few extra dollars to take shortcuts. Ethical brokers and lenders will go the extra mile to watch out for vulnerable borrowers, even at the cost of a funding a loan.
Below are a list of ten things you can do to protect yourself and your clients from mortgage fraud fallout and minimize the chance of predatory accusations.
- Ask if the buyers have shopped around and compared prices and houses. If they feel like their agents rammed a house down their throat, it could be a red flag.
- Don’t state or imply that you are their only chance to get a loan or to own a home.
- Do not allow them to sign a sales contract or loan documents that are blank or that contain information which you know is not true.
- Be certain that the costs and loan terms at closing are what they originally agreed to. Be certain the borrower understands that you haven’t changed the agreement.
- Do not even suggest that the borrowers lie about their income, expenses, or cash available for down payments in order to get a loan. If you suspect they are lying, this is another red flag. You could be exposing yourself legally.
- Clearly explain the downside of higher-risk loans such as balloon loans, interest only payments, and steep prepayment penalties. Make certain they understand the risks involved.
- Be especially careful about making full disclosures to vulnerable people who have revealed to you things like their need of cash due to medical, unemployment or debt problems.
- Don’t let a borrower strip their home’s equity by refinancing again and again when there is no benefit to them. Also, do not try to convince someone to borrow more money than they think they can afford to repay. If they balk at payments, this could be another red flag. If they get behind on their payments and lose their house and the money they put into the property, they may try to find a way to blame you.
- Beware of fraudulent appraisals or homes appraised higher than similar properties in the neighborhood.
- Be certain that you’re giving a fair interest rate based on their credit history and the market conditions, not their race, national origin or other irrelevant criteria.
