Spring is approaching, when the thoughts of many turn to buying a new home, moving from their present digs, or refinancing an existing mortgage. This is also an active time for fraudsters and scammers who want to steal your money through misleading mortgage offers and refinancing scams. Here are some important tips to help you sniff out phony offers:
- Misrepresenting ARMs: An adjustable rate mortgage (ARM) usually has an initial period in which the interest rate doesn't change. Once this period expires, rates can go up….and up. Unethical lenders may fraudulently tout ARMs as "fixed rate," not telling you that the rate is fixed for only a few years. Always read the fine print of any loan agreement, or better yet, send it to your lawyer before signing.
- Lying About Taxes: A survey run by the Consumer Financial Protection Bureau uncovered the common misconception that you won't have to pay any taxes whatsoever when you enter into a reverse mortgage. The truth is that only the advance amount you receive is free from taxes. You still are on the hook for property taxes, and failure to pay them could lead to a foreclosure.
- Reverse Mortgage Madness: The same CFPB survey found that many participants though that reverse mortgages were part of some government program. It's true that governmental entities, such as Fannie Mae and Freddie Mac, buy up many of this country's mortgages. However, reverse mortgages are not run by a government program, and you should beware of any reverse mortgage advertisement that implies otherwise.
- Fine Print: Less-than-honest mortgage brokers may tell you to "read the fine print" in order to convince you that their loan products are legitimate. The cynical advice relies on the fact that most people don't take the time to read or understand the fine print in a mortgage document. Buried in there may lurk waivers such as forfeiting your right to fight foreclosures or sue the mortgage provider. The real annual percentage rate (APR) or the mortgage's actual cost might be hidden in the fine print. Once again, send the document to your lawyer, or get yourself a magnifying glass and read the whole darn thing yourself.
- Phony Refinance Emails: Scammers like to phish for trusting souls, promising to refinance existing mortgages at rock-bottom interest rates. All you have to do is supply some private information and send in a processing fee of say, $50 or $100. This should immediately arouse your suspicions, because your current lender must approve any changes to your mortgage, something that won't take place legitimately through an email. Never give out information or spend money in response to these emails. Instead, contact the offering company directly (there are some legitimate ones out there) and verify the information with government agencies. It is illegal for lenders to ask for up-front fees or "relief," so never every pay money to apply for a loan modification.
Check with the National Foundation for Credit Counseling or the government's "Making Home Affordable" website to learn more about your legitimate refinance options.