When fraud
hits an area,
every homeowner pays
By Michael D. Larson • Bankrate.com
Who really pays for mortgage fraud? Actually,
you.
Loan rates are higher in areas where lenders
have to cope with a sizable amount of bogus applications, false
home appraisals and other scams, experts say. The few extra basis
points in rate compensate lenders and loan investors for the added
risk they assume by extending credit in problematic areas.
South Florida home buyers take a hit, for instance,
for having a large amount of fraud. Freddie
Mac even sent a special bulletin
to lenders last June warning that "in the Miami area, loans originated
during 1997 are defaulting at a rate more than five times the national
average, and at more than double the rate of the next highest regional
average."
Everyone
pays for Miami's vice
In the Miami/Fort Lauderdale market, for example, the Bankrate.com
average 30-year fixed mortgage rate was 6.971 percent in 1998.
In Tampa/St. Petersburg, it was 7.068 percent. Nationally, Bankrate.com
surveys found an average rate of 6.917 percent. As a result,
home buyers in Tampa paid $120 more per year than the national average
on a $100,000 fixed-rate, 30-year mortgage.
|
How mortgage
fraud
burns the Sunshine State
When mortgage fraud hits an area, loans there
tend to carry higher rates. Here are the 1998 average rates
for two Florida metropolitan areas where fraud has been higher
than normal, how they compare with the rates nationally --
and how much extra the Florida home buyers paid as a result.
|
|
Area
|
Average rate, 30-year
fixed mortgage |
Monthly payment on
a 30-year, $100,000 loan |
Average rate, 15-year
fixed mortgage |
Monthly payment on
a 15-year, $100,000 loan |
| Miami/Fort Lauderdale |
6.9708% |
$663 |
6.6742% |
$881 |
| Tampa/St. Petersburg |
7.0683% |
$670 |
6.7683% |
$886 |
| United States |
6.9167% |
$660 |
6.5842% |
$876 |
|
Source: Bankrate.com monthly surveys
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"All lenders are, of course, in business to
make money and they're entitled to a reasonable return on their
investment," says Paul F. Hancock, deputy attorney general for South
Florida. "If they make loans to people who aren't able to repay
the loans, then that's a loss.
"That is eventually recouped in the form of
interest rates because the lender has to make a certain profit."
Alan Robbins, a residential lending executive
with MetroBank
of Miami, who also serves as the vice president of the Mortgage
Bankers Association of Florida, says he thinks area lenders
may just be getting a bad rap. A Freddie Mac spokesman points that
part of the agency's mission is to smooth out regional rate discrepancies.
He says the higher rates aren't necessarily a direct result of the
fraud problem, he adds, but may be the result of a lack of competition
in an area.
"In discussions that I've had with the agencies
up to this point, they realize that South Florida is a good place
to do business," Robbins says. "That doesn't mean that they or anyone
else condones fraud and it's unfortunate that we have a higher level
of fraud, but when you take into consideration . . . the amount
of business being done down here, the positives are still outweighing
the negatives generally."
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