Protect yourself and your mortgage
from home equity lending fraud
If it's such a minefield out there for consumers in
home equity land, what can people do to protect themselves? Here
are some tips from the experts.
- Choose a reputable lender.
That doesn't mean you should dismiss
every telemarketing call or direct mailer, but it does mean you
should be careful when using a company you've never heard of.
Try going to a bank, credit union or other federally regulated
institution first. If that doesn't work, consider no-name brokerages
only if you've checked out their backgrounds via references, referrals
and state licensing agencies, which keep tabs on businesses and
individuals who have been censured.
- Negotiate and shop.
It sounds simple, but it can be the best way for consumers to
avoid getting scammed with above-market fees. Most subprime home
equity loan charges are negotiable because they are charged by
brokers who can accept less or more money for their work, rather
than by banks, which may have set fees that apply to all transactions
of a certain type.
Keep your eyes on what elderly
relatives are doing,
especially if they live alone or don't have the same level of
financial savvy you have. Equity scammers often target older
Americans because they are generally more susceptible to friendly
sounding salesmen. One attorney who specializes in victim protection
recalls a case where the lender actually sent birthday and holiday
cards to a woman even as it was allegedly bilking her out of
Know your credit standing.
Borrowers are generally classified with letter grades such as
A, B, C or D, depending on the number of times they've been
late on consumer loans or mortgages, filed for bankruptcy, applied
for credit cards in the past few months, etc. While the exact
boundaries between each category vary by lender, consumers should
be able to figure out approximately where they stand with a
little common sense. As of late September, an "A" borrower can
expect to pay about 8.5 percent to 9 percent for a standard
home equity loan while a "D" borrower might be looking at an
interest rate in the mid-teens. See our related story on
to check your credit rating.
Don't sign documents
the lender promises to complete
later just to avoid minor hassles.
If you have to take a half-hour off of work to come back tomorrow
and sign a completed, typed document, do so rather than signing
some handwritten application that the broker or lender can change
behind your back.
Consider getting some
from a local nonprofit or government-affiliated group if you've
never dealt with a home equity loan and are unfamiliar with
how they work. The National Foundation for Consumer Credit runs
Consumer Credit Counseling Service offices in many cities, for
example, and some offer housing advice. People can locate an
office near them by using the group's Web
site or by calling 1-800-388-2227.
Try taking a last look
at everything after closing
when there isn't a loan officer hovering over you. Borrowers
have a three-day "right of rescission" with home equity loans,
meaning they can cancel their transactions and get all their
money back if they choose to do so.
SOURCES: Nina Simon, staff attorney with the
American Association of Retired Persons Foundation; Matthew Lee,
executive director of Inner City Press; Connie Wilson, executive
vice president of New City Asset Management Inc.; Bankrate.com research
-- Updated: July 18, 2003