Changing Rates and "Lock In" Play Role In Heads I Win/Tails You Lose Lending Fraud Against Credit Worthy Borrower

Even in this economy, fraudulent mortgage lending is alive and well in Virginia. But with sub-prime lending the principal cause of our present economic woes, targets and tactics have changed dramatically. Lenders are now only interested in credit-worthy borrowers. But that doesn't mean all lenders are worthy. Consumers with good credit who are trying to refi, need to be on the look out for unscrupulous lenders and tactics.

In June and early July, with rates low, consumers with excellent credit had an opportunity to refinance and reduce their interest. Just such a friend told me what happened to him early this month. He was looking to refinance his mortgage, and contacted both a lender and an unrelated loan broker to find out if they were interested in making a loan. To his dismay, both played fast and loose with his business by representing their commitment to his loan, and then watching the market to see if rates would rise or fall after they had made their deal so they could reap more profit or get out of the transaction altogether. My friend had worked in real estate in the 1980s and is a lawyer. He was able to quickly recognize the issues and see through the scam. But common sense, relying on one's intuition, careful observation and a stubborn streak can help you too to avoid being a victim.

Here is my friend's description of what happened in his own words:

I applied for a refinancing with two different mortgage specialists. One a direct lender and one a broker. In both instances they acknowledged my credit history was spotless and I had plenty of net worth and equity in my home to quickly accomplish the refinance. I filled out all of the paperwork, they both had my house appraised. The appraisals reflected plenty of equity in order to refinance. Both were solicitous of the business as they saw it as a slam dunk refi and they would reap the fees with no hassles.

About 10 days after my applications rates spiked upwards. The lender never got back with me despite my calls and emails. Incidentally, he also never cashed my check for the appraisal, even though he had my home appraised. I guess this was their "insurance policy" so to speak. If rates had gone down or stayed the same, the lender would have closed. Since rates went up they walked away.

The mortgage broker was more egregious. Since they offered the lower rate (4.75% with no points), I was more active on them. It was supposed to be a very quick closing. I was told I was fully approved and locked, but after rates spiked and a couple of days before the scheduled closing, they called and told me there had been a mistake. The loan didn't get locked due to a fluke in that the State of Virginia hadn't gotten the title company what they needed in order to issue the commitment and since the lender didn't have the final piece of the package (the title commitment) in a timely manner, the lock was blown. When I informed them that the State of Virginia had nothing to do with the title commitment, they hemmed and hawed. They did come back and tell me they could lock the loan at 5% and would I like to proceed with that. I said no and we have been going back and forth since then. They told me last week they could do it at 4.75%, but there would be a 0.375% point. I said I wouldn't pay it, so they pumped the estimated closing costs by a couple of thousand dollars and tried to backdoor me that way. They also sent me a new application to sign which in the fine print had a lot of exculpatory language to get them out of their previous commitment to me. I crossed it all out (by the way, this was a different application commitment entirely from what I had signed before).

To make a long story short, both the lender and the broker have played a heads they win, tails I lose game. If rates go down or stay the same, they close on their earlier commitment. If rates go up, they wiggle out of it. I plan on not letting this go and will let you know how I come out.