In 2008, the Miami Herald broke the news that, in run up of the Florida housing boom, thousands of convicted felons were serving as unlicensed loan originators and mortgage brokers. This included individuals who had been convicted of financial crimes, such as larceny, fraud, and forgery.
Of course, the vast majority of mortgage lenders are not criminals, rather they are hard-working, honest people. In fact, the FBI's own Web site states that nearly all mortgage fraud was perpetrated by borrowers against lenders! According to Realty Times, while there are a few "bad apples," the "vast majority" of originators and mortgage brokers are on the up-and-up. Millions of loans have been written without incident, so if you choose not to look into your mortgage originator or broker's background, your risk of "geting taken" is statistically small. But what if you want to know more about the person you're revealing your highly-personal and sensitive information to? What can you do?
Check Up on Your Mortgage Originator or Mortgage Broker
Your mortgage originator or broker is going to give you a pretty thorough going-over to make sure that you're a good risk, and you should do the same. How do you go about reducing your risk and protecting yourself from unscrupulous practices?
- Know your state's mortgage loan officer requirements. Some states are pretty stringent, requiring background checks, continuing education, and the passage exams before a mortgage loan officer can be licensed. Other states have no requirements at all. TrainingPro, a mortgage industry education firm, lists the state-by-state requirements for lenders and brokers. If you live in a state with thin requirements, be aware that a license may not be enough reassurance. For example, in Florida, it's illegal for mortgage brokers to have criminal records, but their subordinates (loan officers, loan originators, account executives, or mortgage finance officers) don't need licenses, and may not be given background checks.
- Check your mortgage lender's status in your state. You can find online resources that list state lender databases. Through such databases, you can generally find out if a lender's licensing is up to date, and if there are any pending actions or investigations. You can also check with your local Better Business Bureau.
- Get several mortgage quotes. This is probably the best way of knowing if you have been offered a fair deal. If what you're offered seems too good to be true, it probably is. Check out several lenders or brokers before committing to one. You can also ask for references, use referrals, or see if they're members of any industry trade groups.
- Read your disclosures thoroughly. Remember that whatever is in writing trumps anything you are told by a loan officer or mortgage broker. The most oft-reported abuse of borrower trust occurs when the terms disclosed upfront are changed at closing. New disclosure laws now preclude changes to most fees unless circumstances have altered and the fees have been re-disclosed. If the interest rate, fees, or terms (such as the addition of a prepayment penalty) have changed at closing and weren't discussed with you beforehand, don't sign the documents until the misunderstanding is cleared up, and you either receive a satisfactory explanation or get the loan you expected.
- Use your right of rescission if needed. When you refinance your primary residence, you have three days to rescind or back out of the loan if you aren't comfortable with its terms. Use that time to make sure your loan is what you expected. When purchasing property, it's good to get copies of your closing documents a day or two early. That way you can read through them and resolve any questions without the pressure of being in a title office, at the closing table.
A Mortgage Professional You Trust Is Paramount
Dealing with a loan officer whose professional expertise and character you trust is critical when such a major financial decision is on the line. The amount of money involved in a real estate transaction makes it serious business. A little legwork in the beginning can save you money, ease your mind, and even form the basis for a lasting relationship.
For more ways to improve your comfort level when getting a mortgage, you should read HSH's Ten Best Ways to Improve Your Mortgage Experience.
Gina Pogol has been writing about mortgage and finance since 1994. In addition to a decade in mortgage lending, she has worked as a business credit systems consultant for Experian and as an accountant for Deloitte.