FRAUD — A NEW REAL ESTATE WORRY

May 25, 2006
By seadmin

The walls seem to be closing in on the real estate market as little fires keep popping up. Last week we saw that mortgage foreclosures increased a staggering 18.6% from September to October–a daunting statistic. Additionally, interest rates are climbing and huge percentages of the population are still embroiled in risky mortgages that are costing them more with every passing month. I just read that 67% of the mortgages sold last year in San Francisco were interest only loans and 32% of loans in New York City were interest only, as well. Scary!

Now, we add to the list of concerns for the overheated real estate market an unsavory outcropping of the legendary housing boom: Mortgage scams. That’s right. What used to be nothing more than a blip on the radar, mortgage scams have skyrocketed over the last couple of years and annual FBI reports have actually tripled this year alone.

How do mortgage scams work? Well, you can pretty well name your poison as there’s something for everyone here. Much of the deception emanates from borrowers themselves, as they will lie on their mortgage applications in order to get the loan. Complicit mortgage brokers will frequently encourage borrowers to “crowd the truth” in order to help them finance the home of their dreams that may have soared in value over the last five years.

This is just the tip of the iceberg. A booming housing market, one that has seen huge price appreciations has kept the industry busy making money, but, trust me, as soon as the business dries up and the mortgages turn sour, those lenders will go on the attack like angry dogs. The borrowers who signed their life away will be in a heap of trouble if they can’t stay afloat and it’s going to bite the whole economy in the proverbial butt. It’s the classic smoke and mirrors situation. As long as everyone’s making money, they’ll look the other way with a wink and a giggle. The mortgage scams are going to just exacerbate an already problematic situation.

Borrowers are not operating in a vacuum. They are aided and abetted by an industry that just can’t get enough of a good thing. Remember the stock brokers who were beating the drum in late 1999 and early 2000? Many of today’s mortgage brokers are the exact same breed. They see the handwriting on the wall. They know they are in the last few seconds of basking in the land of milk and honey with easy profits and big deals. They stand to lose nothing by encouraging borrowers to say whatever they have to say to get into a home. Heck, they could even justify that action by saying they’re just helping families live the American Dream. In the meantime, they’re just digging every one of us into a deeper hole by enabling people to take on a loan they have no ability to fund.

Think about the stock market decline of April, 2000. You know what made that market so volatile to the downside? It was all the people who had to cash in their stocks to get out of margin calls. Why? Because they were overextended and ill-prepared for a down market. Just like so many of the homeowners out there today! Add to that situation an element offraud and you have one mother of a downturn.

What can you do? Well, if you plan on staying put, make sure you are in a safe mortgage—one that you can afford even in a weaker economy. One way to accomplish that goal may be a refinance. If so, I encourage you to contact Josh Lewis, “The Homebuying Coach”. Josh is one smart mortgage broker who will steer you in the best possible direction for your situation. He is experienced, trusting and the most knowledgeable person I know in the industry. If you would like solid advice from a true professional, give Josh a call at ( 800) 218-9217 or via email at jlewis@stearns.com. (Josh Lewis is a proud sponsor of Making Money with Doug Fabian)

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