An increasing number of complaints are coming from homeowners who have succumbed to pressure from mortgage brokers and lenders to refinance their property or take out large equity loans.
Many of today’s refinancing transactions are definitely justified. In certain situations it can save the consumer a substantial sum of over the term of the loan.
But in too many cases, according to the Mortgage Bankers Association of America and consumer groups, homeowners are persuaded to refinance when it is not to their financial benefit to do so. Sometimes multiple refinance transactions are promoted in a short time period. The only persons benefiting are the broker and lender who receive substantial fees for every transaction.
The promotional line usually goes something like this: Refinance now and use the equity in your home to consolidate debts, go on vacation, start a business or pay for a child’s education. They may even list a very low interest rate and say there is no closing costs.
In some cases, what they don’t quote upfront is the list of high fees involved in each transaction, and the fact that the no closing cost line means they simply add all those costs to the loan. Consumers not only eventually pay those costs, they also pay interest on them. In some cases, the interest rate is increased to more than the prevailing rate to cover the closing costs.
They also seldom discuss what happens if and when the borrower is unable to pay the new monthly mortgage payments. They can lose their home and their investment in it.
It’s no wonder people are tempted to tap the equity in their home. Property values have been going up significantly in recent years like $200 billion last year alone. Nationally, home values have increased more than $700 billion since 1995, according to economists at the National Association of Realtors.
As of last year, the homeowner’s median gain in residential property values was about $28,700, according to NAR. In high appreciation states like California, the gain was more than $40,000.
Generating cash from growing home equity can be a very strategic move for some families, but keep in mind it’s not free money. Those loans have to be paid back with interest. And consider the fees involved in each transaction.
Many of the current complaints are coming from older homeowners who have accumulated a sizable equity over the years. This is the favorite target for promotion-minded mortgage brokers and lenders who have little concern for the welfare of borrowers.
Executives of the Mortgage Bankers Association are now so concerned about abusive lending practices they have started sending out news releases to media in an attempt to educate consumers and mortgage brokers.
Predatory lenders gouge the public through techniques that constitute outright fraud, concealment, forgery, deceptive practices and non-disclosure, a recent MBA release stated. These activities are against the law in every single state in the union. Better enforcement of existing laws is essential.
Consumer awareness and education are among the most effective tools available for combating predatory lending practices. Consumers who have an understanding of the lending process and who are aware of counseling and other options are far less likely to fall prey to unscrupulous lenders.
Obviously, this type of practice on the part of a few mortgage lenders is a black eye for the entire industry.
Consumers should definitely consider refinancing or acquiring an equity loan if they think it might be prudent to do so. But they should think it through carefully before signing an application document. And it’s always a good idea to discuss it with a trusted person who is knowledgeable about such financial affairs.
Most mortgage lenders and brokers are very reputable and make it a point to explain all aspects of their offered loan. But others will reveal just enough information to make the sale. And they are often the biggest promoters.
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Many consumers are expressing interest in pursuing ways to enhance their credit score, putting them into a stronger position to acquire a favorable home mortgage loan.
Probably the best and fastest way to achieve that objective is to file for a rapid rescoring of your personal score. This is usually accomplished through a loan officer. Commonly, scores can be increased from 50 to 100 points in about a week.
This can make a substantial difference in the type of loan an applicant is qualified to receive. It can lower the interest rate and fees, and generally improve the terms of the mortgage. Consumers desiring such a change should discuss it with their loan officer.
Jim Woodard writes a nationally syndicated newspaper column on real estate news and trends. It’s titled Open House in most newspapers, and carries his byline as James M. Woodard. He is also a professional storyteller with a pictorial Web site at: www.storyteller.net/jwoodard/.