What a perfect time, in the middle of the holiday season, to get a low-interest loan, refinance your mortgage and maybe consolidate all your bills.
Particularly when you’re getting promises of 24-hour approval and no closing costs regardless of your credit history, and just for a small “good-faith” advance fee.
What a perfect time indeed for scam artists to run this advance-fee fraud scheme, and how perfectly naive you are–I actually can think of another word–if you believe what they tell you without checking them out.
“If somebody is promising you a lot of money for a very low interest rate, take the time to think,” said Sharon Dawes, a financial examiner supervisor at the state comptroller’s office in Florida.
The advance-fee scheme–asking you to pay a percentage of the loan amount upfront to process your application–is a major ongoing fraud in many parts of the country.
The pitch is that you can get refinancing in 24 hours without closing costs. The reality is that after you pay the advance fee, the alleged mortgage broker begins stalling you until he skips town with your money.
“It tends to be an easy fraud to perpetrate,” said Mark Mathosian, chief investigator at the comptroller’s office in Ft. Lauderdale. “These swindlers gather as much money in advance fees as they can and then move on.”
Although an advance payment is usually required in legitimate mortgage transactions, the amount is small compared to the size of the loan and the fee is typically for a specific item.
Legitimate mortgage companies apply upfront fees to credit reports or property appraisals. But in the typical advance-fee scheme, self-described mortgage brokers ask for a percentage of the loan amount, usually 1 percent, and call it a “loan processing” or “application” fee, or “good faith” deposit.
Mortgage brokers, who must be licensed in several states, do not lend money but act as middle persons between borrowers and lenders. A mortgage broker may have access to several lenders and be able to offer you a wide variety of loan programs.
But while mortgage brokers can help you find a lender, they cannot fund a loan or guarantee you will be accepted into any loan program or be approved for a particular interest rate.
Only a licensed mortgage lender or a financial institution such as a bank or savings and loan can do these things.
So it’s a warning signal when a self-described “loan broker” or “mortgage broker” starts promising you low interest rates, or asking for money upfront to make sure your application is handled promptly.
“You as a borrower should be asking, `What is this money for and why you do need it upfront?’ ” Mathosian said.
Otherwise, you are asking for trouble.
“People are really quick to write that advance-fee check,” Mathosian said. “But once the swindler gets your advance fee, he gets into a stalling mode.” He will say you need to fill out more forms, or provide more documents about your finances, or simply that loan applications take time to process.
You are bound to get suspicious at some point, but “by the time we investigate, they are usually gone,” Dawes said.
Investigators say victims of the advance-fee scam include not only consumers facing a credit crunch or unable to get conventional home financing but also business owners in need of a large amount of capital.
The promise is typically for a debt consolidation mortgage loan or a business startup loan. The swindlers sometimes claim to be connected to a legitimate lending source, such as bank, pension fund or insurance company.
“They know how to bait their victims,” Dawes said, often through classified ads in newspapers that rarely give more than a telephone number or post office box as a contact.
Even with dealing with legitimate mortgage brokers, consumers need to be alert. Make sure, for example, that any advance fee that is requested is placed in escrow.
“Be certain that the funds are kept in an escrow account maintained by an independent escrow agent or trustee not affiliated with the broker,” Mathosian said.
Whether you deal with a mortgage broker or lender, you are also entitled to receive in writing a list of the services for which you are paying and an estimate of the total cost of the loan.
These documents are sometimes combined into one form called a “good-faith estimate and mortgage broker agreement.” Read it carefully before you sign it, and question any fees that look excessive, Mathosian said.
Legitimate companies also will give you a useful guide on settlement costs by the U.S. Department of Housing and Urban Development, Dawes said. The 45-page guide includes sections on home buyers’ rights and obligations and worksheets to estimate costs.
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