Too-good-to-be-true mortgage offers

Debt elimination shouldn't come with upfront fees

By Inman News Feed
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Debt elimination shouldn't come with upfront fees

Tom Kelly
Inman News

There's a new buyer-beware issue in the mortgage banking game that smells a lot like what was cooking in the "mortgage elimination" kitchen a few years ago.

Internet marketers have been sending messages to borrowers indicating that they can get their "mortgage canceled or principal reduced" by signing up for a $320 mortgage matrix that could magically eliminate debt with their lender. One offering purported to have saved a client $61,000 in late fees while reducing the principal portion of the loan by $50,000.

"There are always going to be people out there looking to mislead," said Ted. C. Jones, senior economist for Stewart Title. "And unfortunately, there are always going to be people who think they can get something for nothing. For some reason, there are people who have shown a propensity to simply stroll away from their loan."

The people pushing the mortgage matrix plans typically offer information that consumers can discover for themselves. Others sell the idea that the lender made an obvious mistake on their specific loan and that an audit would easily uncover these discrepancies.

The mortgage matrix is a fancy term for going through your loan papers. Some companies sell a similar program called a forensic mortgage audit, which is an in-depth examination of mortgage payments, schedules and late fees. Many times, these audits are the basis by which a lender begins a possible loan modification for a borrower. However, borrowers can usually find out if they qualify for a loan modification by contacting their lender.

While a few attorneys have specialized in loan modifications and short sales, paying an out-of-state company you have never heard of a fee to uncover a pot of gold usually does not work.

"A lot of times, it goes back to initial services," Jones said. "If you start out by working with a local Realtor or lender that you trust, you are usually going to get representation that gets you started out on solid footing."

The mortgage elimination schemes popular a few years ago lured younger couples with larger mortgages. A new generation had entered the market (the same philosophy Disney uses for re-releasing movies every seven years) and scammers wanted to make sure they did not lose out on properly confusing a fresh group of inquiring minds.

The idea was to persuade borrowers that they could get out of their mortgages without repaying their debt. The program sellers, who charged outlandish upfront fees of $6,000-$20,000, then disappeared before defaults began to surface. They based their case on old common-law terms and heavily camouflaged rules and false conditions.

The net result was that homeowners suddenly found themselves taking an active role in real estate fraud -- plus they faced the prospect of selling their home to pay for legal fees and other costs they had created. The plans also drove title insurance officials crazy.

In the mortgage elimination pitch, the homeowner is persuaded not to be concerned about that fee because the plan is to clear the title, then refinance to get money to pay the fee. When the program reaches its likely ending, the promoters have vanished. The homeowners are likely to lose their home and end up with a significant judgment against them that cannot be discharged in bankruptcy because it is the result of fraud.

The program sold to the homeowner was prefaced by an inaccurate assumption that money never really changes hands in the mortgage lending market. The program sponsors and marketing materials went to great lengths to argue that because the primary and secondary residential loan markets do not fund with cash, all loan processes were bogus.

For example, one pitch contended that Fannie Mae funds loans with only wire transfers and a system of credits, as does the wholesale loan market. These sponsors then make the leap that a consumer's credit should be just as good as any lender's system.

Granted, the lending systems in this country have had huge problems. But borrowing money and then believing you don't have to pay it back because of a remote manufactured technicality is unrealistic and under the "dream" category.

If it sounds too good to be true ...

Tom Kelly's book "Cashing In on a Second Home in Central America: How to Buy, Rent and Profit in the World's Bargain Zone" was written with Mitch Creekmore,  senior vice president of Stewart International, and Jeff Hornberger, the National Association of Realtors' international market development manager. The book is available in retail stores, on and on

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