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Johnny Bell had a new deck and other home improvements
in mind when he refinanced his home in Oxford, Miss., last summer.
Make that almost refinanced.
Bell spotted attractive terms on a television ad,
contacted the lender and locked in a cash-out refi at 5.125 percent
with $350 upfront as a processing fee toward a 45-day closing.
Then trouble began. First, the company delayed the
closing, saying it was behind on the paperwork. Then it asked for
proof of reserve funds and Bell complied. After 90 days, the company
informed Bell that his "locked" rate had gone up to 6.2
percent.
"I got angry," Bell recalls. "I told
them I was definitely not paying more interest. They started making
excuses for why it had taken so long, putting the blame on Fannie
Mae for requiring the reserves. But the interest rate didn't have
anything to do with the reserves."
After two more months of futile telephone calls, Bell
walked away from the deal, received his $350 back and built his
deck out of pocket.
"It was bait and switch," he said. "It
took me five months to not refinance."
Signs of a bad loan
Bell's experience isn't isolated. For the last
couple of years, low interest rates, aggressive marketing tactics,
scant industry oversight and investors who want to put their money
into real estate instead of the stock market have contributed to
the ideal operating environment for predatory lenders.
In many cases, it's all too easy for a trusting homeowner
anxious to leverage a home's value or lock up a low rate to fall
prey to less-than-upfront lenders. W.C. Fields maintained that you
can't cheat an honest man. But when it seems that everyone is getting
a loan and you've been promised rock-bottom interest rates and negligible
fees, it's hard to resist.
Some deals, however, are indeed too good to be true.
According to the Federal
Trade Commission, you may be signing on for trouble if a lender:
- Encourages you to falsify your application information
to get the loan.
- Urges you to borrow more than you need.
- Pushes you to accept payment terms that you can't
realistically meet.
- Fails to give you the required disclosures (e.g.,
APR, rescission rights, etc.).
- Shows up at closing with a totally different loan
product than you agreed to.
- Asks you to sign blank forms. ("It'll speed
things up. We'll fill in the blanks later, trust me.")
- Denies you copies of documents you signed.
And if you miss a warning sign early in the process,
a bad loan often resembles the Tar Baby from the Uncle Remus story:
The further in you get, the harder it can be to get out. Bad lenders
are counting on the likelihood that the farther you travel down
the loan-process road, the more you will have invested in earnest
money, deposits, inspection fees, design plans and contingencies
that accelerate your momentum to close.
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