Along with the exceptionally low interest rates of recent years has come an unfortunate companion: bank fraud. The commercial noise of all the competing lenders in the home mortgage loan market often obscures the very real problem of bank fraud. If you've recently taken on a mortgage or are thinking of refinancing your home, it's critical that you are aware of the inherent dangers of borrowing money.
Though bank practices are most prevalent among those with lower incomes, the tactics are extend to all consumers. It's important to educate yourself in order to avoid being taken in inadvertently. Anyone using the right terminology and offering great rates can appear to be a legitimate banking-related business, but beware the many signs of those who are simply looking to defraud you and your family.
Among some of the most common warning signs of bank fraud are the following: excessive fees, severe prepayment penalties, "Yield Spread Premiums," which are kickbacks to brokers, and loan flipping. This is the common practice of repeated refinancings on one home. These transactions garner the broker/lender repeated profits from closing fees and more, but are of no benefit whatsoever to the borrower.
Many consumers with ARM (adjustable rate mortgage) loans are beginning to have the price reset to a higher monthly payment and inevitably, some of the buyers can't handle these higher payments.
The problem with these loans, is that when home values goes down, it takes all options away from the property owner as far as refinancing goes. The borrower has no equity.
In effect, they're locked into a that loan. Adding to the problem is that the real estate market is currently soft and people who are falling behind on their payments are finding it almost impossible to keep their homes.
Most of these ARM loans were given to consumers at the closing table. Where the borrower thought he was getting a 30 year fixed mortgage he was getting an adjustable rate mortgage. When the interest rate increases it is a total surprise and the borrower and he/she cannot afford the higher payment and falls behind. The lender starts to foreclose and the borrower is in trouble and may lose the home.