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Tuesday, June 20, 2006

Buyers Beware: The Mortgage Market Is Still Hot, As Is the Prevalence of Mortgage "Traps"

For the past few years, Americans from Maine to California have been taking advantage of the nation's consumer-friendly interest rates and buying new and preowned homes at a frenetic pace.

These days, with interest rates on the rise, you'd think that all the homebuying would start to slow down. But, in fact, Americans are still buying homes at a faster pace than many forecasters have been predicting.

Of course, all these folks who are buying these homes need mortgages, and since the market is hot--and very profitable--many new mortgage companies and brokers have been springing up all across the country. Most of these mortgage companies are OK, but not all, and it is important for any and all mortgage consumers to understand all the different mortgage scams and mortgage "traps" out there, so as to avoid becoming a victim.

The folks at HWC issued a press release today that's filled with some useful facts and information that you should know, especially if you are in the market for some home financing. Bottom line: ignorance is the mortgage scammer's best friend! Details below:

"HWC has published a white paper that reveals little known secrets in mortgage agreements that cost customers thousands or tens of thousands of dollars. Some of these traps could cost the consumer their home.

'The mortgage industry is ultra-competitive. To get the business the companies often have to agree to terms that would make the business unprofitable or minimally profitable. But they still need to make money. How do they do it? By putting in subtle traps in the contract that can cost consumers thousands or even tens of thousands of dollars over the course of the loan. Worse yet, sometimes these traps could cause you to lose your home,' said Roger Noorthoek, president of HWC.

These traps include: hidden fees, excessive and unnecessary insurance charges such as on Private Mortgage Insurance, secret taxes, hidden charges in broker’s fees and very high closing costs due to extra charges. Other traps in mortgage agreements include: sudden and unanticipated increases in interest rates (especially on Adjustable Rate Mortgages) and extra charges on processing or origination fees.

Another trap involves the borrower paying higher monthly payments than they apparently agreed to. This involves giving a low rate (or low monthly payment) and then the mortgage company or bank 'making it up' by charging more on other components of the mortgage such as insurance, taxes or miscellaneous fees.

Finally, and most dangerously, there are clauses in some mortgage contracts that can cause foreclosure even though one is current on their payments. A little known fact is that there are many types of foreclosure other than non-payment of mortgage. These include tax liens, judgment liens and mechanics liens, among others. Some types of liens in certain states can allow an unrelated third party to buy the lien and then foreclose and keep the property--even if the consumer has the money to buy back the lien. Yet, with the correct language in the contract, this problem can be avoided. This problem is worsened by the rapid growth of the mortgage industry and hence the relative inexperience of many mortgage brokers. There are literally dozens of possible traps.

'Mortgage contracts are incredibly complex and they are written by the bank or mortgage company’s attorneys. They know what side their bread is buttered on and it isn’t yours. If you don’t know what you are doing you are almost guaranteed to overpay or worse,' noted Noorthoek."

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