American Homeowners Association Membership  
American Homeowners Association



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:

  • Equity Stripping:
    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.

  • Loan Flipping:
    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 transaction.

  • 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.

  • Copyright © 2001, AHA, the American Homeowners Association, Stamford, Connecticut, USA All Rights Reserved.