Watch Out for Mortgage Fraud

Financial services are growing and expanding, and that's generally good news for the consumer. At the same time, unscrupulous people are coming out of the woodwork trying to take advantage of the system, and that includes mortgage services. Two of the most vulnerable areas to watch are reverse mortgages and selling of mortgage loans. Be on your guard when applying for a reverse mortgage, or when you receive notice that your existing mortgage has been sold or "transferred" to a new loan provider.

Reverse Mortgages
Reverse mortgages are expected to boom over the next five years, particularly among seniors. According to Fannie Mae, the big secondary mortgage company, over a million seniors could take advantage of this relatively uncommon loan, which actually involves getting money back from your loan provider to use however you choose. Fannie Mae wants consumers to understand what they are getting into, especially to know how to recognize pressure sales tactics. Those payments may seem very tempting but don't let anyone fast-talk you into a reverse mortgage, not even friends or relatives. Make sure that payments are made out directly to you--don't sign the money over to anyone else. Remember that it's totally up to you how you spend the money. Just because you heard about a reverse mortgage program from a remodeling company or someone trying to sell investment products, doesn't mean you have to purchase their services.

Fannie Mae's free brochure on Reverse Mortgages is available by calling (800) 732-6643. In addition, the National Center for Home Equity Conversion runs a web site with consumer information, including calculators that tell you how much money would be available to you under a reverse mortgage. The address is www.reverse.org.

Selling of Mortgage Loans
Although it comes as a surprise, it's not unusual for your existing mortgage loan to be transferred or sold to a different lender. Most loans are sold in the secondary mortgage market to Fannie Mae or Freddie Mac, the largest purchasers. When the new mortgage servicing company acquires your loan (without changing your loan terms) they must notify you about it.

Nonetheless, you should carefully scrutinize any notice claiming that your mortgage loan has been changed to a different provider. Unfortunately, fraudulent operations have sprung up around the country that send bogus letters telling homeowners that their loan has been purchased and to send payments to such and such company. You guessed it--no such transaction was ever made in these cases. Some unscrupulous individual defrauds homeowners for a couple of months then sneaks off to a different part of the country.

Congress under RESPA (1990 Real Estate Settlement Procedures Act) required certain safeguards for homeowners. When a lender transfers, assigns, or sells a mortgage loan, the existing lender and new lender must disclose the date of the transfer, the name, address, and telephone number of the new lender, and the appropriate contacts for both the old and new lender offices. The transfer cannot affect the terms of the loan or servicing provisions. Federal law also requires a 60-day grace period during which payments cannot be considered late nor penalties assessed for payments that are misdirected.