Don't Fall Victim to Home Equity Scams
Time is on your side, if you're a homeowner. As long as real estate values
increase in your neighborhood, the longer you own, the more valuable your
initial investment becomes. Home equity is a built-in advantage to owning a
home that gives you leverage as a consumer. You can use it as security for
home improvement loans and other personal loans.
Unfortunately, that very same nest egg makes homeowners vulnerable to scams,
particularly low-income borrowers, the elderly, and people with credit
problems, from certain unscrupulous lenders. The problem of deceptive
mortgage loan marketing and pricing recently got the attention of Fannie Mae
and Freddie Mac, the two major secondary loan companies, as well as the
federal government. They say that the problem disproportionately affects
borrowers in low-income and minority neighborhoods. But the same warnings
apply to any homeowner.
The Federal Trade Commission cautions all homeowners to be on the lookout for
the following scams and deceptions:
The lender gives you a loan, based on the equity in your
home, not on your ability to repay based on your income. If you can't make
the payments, you could end up losing your home.
The lender encourages you to repeatedly refinance the loan
and often, to borrow more money. Each time you refinance, you pay additional
fees and interest points. That only serves to increase your debt.
Credit Insurance Packing:
The lender adds credit insurance to your loan,
which you may not need.
Bait and Switch:
The lender offers one set of loan terms when you apply,
then pressures you to accept higher charges when you sign to complete the
Deceptive Loan Servicing:
The lender doesn't provide you with accurate or
complete account statements and payoff figures. That makes it almost
impossible for you to determine how much you have paid or how much you owe.
You may pay more than you owe.
Always shop around for the best loan terms and interest rates. Remember that
under Federal law, you generally have the right to cancel the loan agreement
within three business days. This is called your "right of rescission," and it
applies even if your home is a condominium, mobile home, or houseboat, as
long as it is your principal residence. You can do this for any reason, with
no questions asked by the lender, within three business days of signing the
agreement and receiving a federal truth-in-lending statement.