Mortgage Switcheroo: What
To Do If You're Swindled

Issues on people's minds: What do you do if the mortgage you thought you were signing for isn't the one you end up with and should you lock in the rate on your home-equity loan now?

Question: I refinanced my house from a 7% fixed-rate loan to a 5.75% fixed-rate loan without a prepayment penalty. But what I ended up with was a variable-option loan with a prepayment penalty. I did not get copies of the documents I signed because it was late in the day and the lady wanted to go home. The next day, I asked for copies but never received them. Then, when I received the initial payment statement on my new loan, I discovered I had a mortgage in which I could choose among four payment options. This was not what I agreed to. I asked the broker and the lender to send copies of the signed documents on several occasions but never got them. Finally, after three months I received copies from the escrow company, and after reviewing them, I discovered that the signature on all of them was not mine and the signature on the quit claim deed was not my wife's. The bank refuses to discuss the matter and my interest rate keeps going up every month. What can I do?

Answer: If what you say is true, you're a victim of fraud and you should contact the authorities immediately -- not by phone, though, but my registered mail. Sit down and write a brief and unemotional letter detailing what happened, including names, dates and times. And make sure you keep copies for your records.

I don't know where you are located. But your first step should be to contact the agency in your state which regulates the mortgage business. Most states have either a separate agency or a separate office within another agency, usually the banking department. Most state mortgage regulators belong to the American Association Residential Mortgage Regulators. You can find a list of contacts at www.aarmr.org.

Next, contact your lender, again by mail. Call and ask to whom a letter should be addressed regarding a fraudulent loan, but also send a copy of your letter to the bank's president and chairman. In your letter, tell them you also are notifying the bank's state and/or federal regulator about its lack of response to your previous pleas for help. You need to get the bank's attention, and this is how to do it.

And third, follow through on your threat by finding out which state or federal agency regulates your lending institution and sending them a letter as well.

I don't know what the remedy will be. But it seems to me that the loan should be rescinded and your payments returned, and that you should be given the loan to which you originally agreed. Hopefully, you have saved your original documents -- application, Truth-In-Lending statement, commitment letter and so on -- to support your position.

With regard to the forged signatures, you also might want to contact your local police department and possible the mortgage-fraud unit of the FBI. If the broker did this to you, she's likely to do it to someone else.

Question: I wonder if you could give me some advice regarding my $25,000 line of credit based on the equity I have in my home. I've been concerned about rates going up, so I looked into a "lock option" offered by my lender. Under this option, I can lock "in" and "out" five times. When I took out my equity line last March, the rate was 5.35%. Now it is up to 7.25%. Being concerned and security oriented -- I am a teacher -- I opted to lock-in a fixed rate on my $14,700 balance at 9.04% for approximately 28 years. My payment is now about $100 a month. The locked-in rate starts in February (when the payment will jump to $120). Do you think this was a wise move?

Answer: Nine percent seems awfully high to me. Yes, rates are creeping up. But I haven't heard of anyone predicting that long-term interest rates would exceed 7%, let alone reach 9%. Why couldn't you lock down your present rate? Or a rate that's just a bit higher?

There are probably several ways to look at this: One is that $20 a month more than you are paying now isn't a lot of money, especially when you consider that your payment will never go any higher. Still, $20 a month for 336 months adds up to $6,720, and that's more than a third of your balance.

At the same time, if, as you say, you can back out of your rate lock if rates should go down, you can always take advantage of a lower rate if and when that becomes available.

Another possibility is to let your rate ride with the market and take the chance that it won't ever reach 9% and may eventually go back down without any further action of your part. Of course, the rate could go that high -- even though no one is suggesting it will at this time.

Since no one knows for sure whether rates will rise or fall -- or by how much -- all of this is pretty much a crap shoot. You should base your decision on what you can afford. Work out a worst-case scenario and go from there.

You might want to take your dilemma to a financial adviser, or perhaps the person who prepares your taxes, for additional counsel.

Email your comments to rjeditor@dowjones.com.