by Ralph Lawrence

Created on: May 01, 2008

Fraudulent or unethical behavior occurs every day in the mortgage world. Time and again borrowers are faced with impossible decisions or insurmountable obstacles relating to their financing package.

Every anecdote about unscrupulous practices by mortgage brokers requires the question "How does this happen?" The basic response and mother of all answers begins with licensing. Mortgage solicitors and brokers need not be licensed. No training, no compliance, no responsibility is required to advise Mr. & Mrs. America on the suitability of a product.

In many cases, the financing vehicle is chosen based on the income generated to the firm and the individual broker/adviser rather than its place in a properly planned investment strategy. Yield spread, fees, points and charges paid outside of settlement are most always included in the end product resulting in a increase in the mortgage amount, allowing the borrower to obtain the financing without any "out of pocket expenses."

Even the friendly hometown bank is not without blemish. Often, an existing client of the bank will automatically assume that preferential treatment as to rates and fees is almost a given. Not so. Look for hidden charges.

So the end result looks like this. The borrower has to borrow more than the desired amount to finance costs of the mortgage, pays a higher interest rate to cover lender/broker costs and fees plus additional monies necessary to the title company for their work in closing the transaction.

This scenario is based on a PERFECT OR NEARLY PERFECT BORROWER. Those citizens who have a small blemish on their credit, or higher debt-to-income ratio (the main ingredients in a loan approval) have a different set of guidelines to win that approval. Borrowers who fall into this sub prime category are often victims of predatory brokers and lenders. This becomes a fertile ground for fraud and manipulation. And there is precious little consumer protection law in place.

It is incumbent on the borrower to demand full explanations of the cost and charges. Insist on disclosure of the rate and term of the loan and any changes that might occur during its life. When shopping, be cautious about low rate advertising. Mortgage rates are in lock-step with the US Treasury bond market. This means most lenders are in the same general vicinity on rates, so rates quoted unusually low will always carry high fees, points and closing costs.

There are many mortgage brokers who are honest and trustworthy. Seek referrals to them from family, friends and business associates. A mortgage is a family's largest financial commitment. Be prudent and be rewarded.

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