How Mortgage Brokers and Lenders Rip You Off: Frauds and Unethical Lending Practices

In this video guide, our mortgage expert, Tyler Warrick, talks about unethical lending practices, mortgage fraud, and how to avoid getting into a bad home loan.

Watch the video or read the transcription below to learn how not to overpay or get scammed.

Hi there. My name is Tyler Warwick and I am a licensed mortgage broker. Today we are going to talk about how mortgage brokers and lenders rip you off.

The first thing I want to touch on is unethical lending practices. Let’s go through scams built into mortgage one by one.

1. Unnecessary Fees

Don’t let your lender take you for a ride. There’s no need for these processing, origination, application, or any type of junk fees out there.

More times than not, they don’t need to be charging these. They are just using it to pad their paycheck.

The one thing that mortgage lenders do control is going to be box A on your loan estimate or closing disclosure.

So, don’t beat up your loan officers based on title fees or escrows because those are things that they do not control.

2. Steer You into a Different Type of Loan Program

Another thing that they can do that is unethical is steer you into a different type of loan program that benefits them.

Now, mortgage lenders can do this for a multitude of reasons. So, do your due diligence, ask a lot of questions, and figure out why you are going with one specific product as opposed to another one.

3. Not Acting in Your Best Interest

The last unethical practice that I want to bring up is specific to mortgage brokers.

Mortgage brokers, by definition, are the middlemen, and they work with multiple different lenders to get you the best deal.

I see this time and time again where you have got unethical mortgage brokers who work with one, two, maybe even three lenders because it makes their life easier.

But at the end of the day, a good mortgage broker is here to get you a good deal regardless of how much work it takes.

If we switch gears into mortgage fraud, there are two main types that I want you to be on the lookout for.

The first one is going to be income fraud, and the second one is going to be occupancy fraud. So, let’s break them down.

1. Income Fraud

Income fraud is when somebody lies about the borrower’s income.

From the borrower’s perspective, a borrower might lie because they have been told that they don’t qualify and they need this mortgage.

But what the mortgage lender might do is they might say that the borrower actually has more income. They might forge documents because this is ultimately how the lender gets paid.

2. Occupancy Fraud

If we flip gears over to the occupancy fraud, typically this is dealt with on the lender side because these lenders want to get a little bit more aggressive when it comes to rates and costs.

I have seen it where there are borrowers out there who say this is going to be their primary residence as opposed to an investment or a second home because they want to get a better interest rate.

At the end of the day, this is the reason why that type of fraud happens. It is to get better rates and terms.

A question that I get asked about frequently is mortgage life insurance. Is mortgage insurance a rip off?

The short answer is no. Let’s kind of unpack that here.

A mortgage protection plan should not be confused with private mortgage insurance, which relates to conventional loans.

It should not be confused with mortgage insurance premium as well, which relates to FHA loans. All three of those things are separate.

Mortgage protection insurance is just insurance. Ultimately what it does is it helps protect the borrowers.

In the event that somebody dies, the insurance company will pay off the entire mortgage.

Obviously, there are pros and cons to any type of insurance out there.

I implore you to do your due diligence, do a little bit of research, and see if that’s something that is going to be beneficial for you. It definitely has its pros and cons.

How can you, as the consumer, spot loan scams? Here are some tips on how to tell if a loan is a scam.

1. Be Curious

Obviously, you are not a licensed loan officer and no one expects you to be.

However, you are probably getting into the biggest purchase of your life, and I do want you to be curious, ask questions, and understand what it is that you are getting into.

2. Ask How Loan Officers Get Paid

It’s completely normal for you to ask this.

Your mortgage loan officer is going to be diving into your finances, so you definitely have the ability to ask them this question as well. Don’t feel uncomfortable.

The reason why I want you to ask this is because certain types of loan officers get paid at different stages.

Some people get paid to fund your loan, which is what you want because they only get paid if you get the mortgage, as opposed to other types of loan officers out there, who get paid to either lock your loan or accept a deposit, or a combination of the two.

Why is this not good for you? What a loan officer could do is they could tell you that you are approved.

They can say, “Hey, these are the terms that I want you to get.” They can lock you in and they can take your deposit, and then they get paid.

But you still have to go through the underwriting process and if you don’t actually qualify, then that’s not good for you.

So, ask them how they get paid. You want to align yourself with somebody who gets paid if your loan funds.

3. Disclose Everything

The last tip that I can give you is to ultimately be truthful and disclose everything that you possibly can upfront.

There’s nothing bad that can happen to you if you give the full HD picture to your loan officer.

You just want to make sure that you are disclosing everything, and I guarantee you, you’ll be able to sleep well at night.

That’s my advice on how to know if a loan is a scam and how to choose a reputable broker or lender. I hope this helps.

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About the Author

Before entering mortgage lending, Tyler Warrick worked alongside financial advisors and small businesses. After purchasing his first home and going through the process, Tyler felt he could provide a ton of value to future home buyers — he immediately quit after closing and joined a well known mortgage company.

After a few years in retail mortgage lending (think big name online mortgage companies), he made the educated switch to join an up-and-coming independent mortgage brokerage company, X2 Mortgage, so he could provide the best possible deals for his clients.