Mortgage Scams and How to Fight
Back If You've Been Swindled

Issues on people's minds: What can you do if you find the mortgage you were promised is not the one you closed on and how do you go about getting a reverse mortgage?

Question: I was quoted a three-year fixed mortgage that was not supposed to change for 36 months. I also was quoted a margin of 2.75 percent. The mortgage agent changed the rate to a 3 percent margin and the three-year fixed was changed to a monthly rate. This caused me to pay extra interest of $19,949.95 for the first year. Next year will be even more. What can I do? Help! Manuel Andrade.

Answer: Sounds to me like you are victim of abusive lending practices, otherwise known as "predatory lending." But is it possible that after being told you qualified for the less expensive loan, you agreed at the last minute to the more expensive one because for some reason you no longer qualified the less expensive one?

Whatever if the case, if what you say is true, the loan broker changed the terms of your mortgage without your permission or knowledge. But why on earth are you waiting until now -- apparently a year after the fact -- to complain?

Anyone who believes something's amiss with their mortgage should begin asking questions right away. And if you can't get satisfaction from your broker, take your questions to the next level and keep going until you get satisfaction, even if that means you have to go to the authorities.

Unfortunately, most of the kind of skullduggery you describe is committed by mortgage brokers, who originate upwards of 60% of today's mortgages. Of course, not all brokers are guilty of this kind of fraud. In fact, most are on the up-and-up and abhor the kind of thing you have experienced. But the few bad actors spoil the basket, which is why many states have either enacted or are trying to enact laws to prevent the miscreants from preying on unsuspecting borrowers.

Victims of this kind of conduct should follow the money. That is, complain to the loan agent's boss, if he has one. Next, gripe to the funding lender. Brokers don't actually make loans. Rather, they do all the paperwork and other tasks, and then take the complete loan package to a lender, which actually supplies the money. If you still don't get any satisfaction, determine if the loan has been sold on the secondary mortgage market. If so, take your story to the new lender. I know this sounds like a lot of work, but somewhere along the line, someone may set the matter straight.

Also take your case to the authorities, both state and federal. Most states license mortgage brokers, and the Federal Bureau of Investigation will go after anyone who is linked to a broad pattern of fraud. As I said in last week's column the Mortgage Bankers Association has a list of state agencies that oversee the finance sector. Check out the MBA Web site.

Lastly, I'd like to get back to the hypothesis I posed at the beginning of my response; that is, something might have happened between the time you were approved for financing and the closing.

People tend to think gaining approval is the last hurdle in the footrace to buy a house. But it's not. Settlement is. And lenders often run a second credit check on applicants a day or two before closing to make sure nothing new has popped up that would change their credit standing. Borrowers who don't know this -- or aren't warned about it by their loan brokers -- sometimes go out and buy furniture, new cars or other big-ticket items that change their credit scores and push them into a higher-rate mortgage.

If something like that occurred in your case, your loan terms may have changed. But you should have been told.

Question: I have an older friend who is seeking a reverse mortgage. His home is free and clear. Located in Seattle. E-mail me if you're interested or have any input. Frank.

Answer: I suppose you are writing because you saw my answer to a question on reverse mortgages earlier this year. But I fear you are a tad confused. I am but a humble typist, not a lender. And as an independent voice in the real estate wilderness, I cannot recommend one lender over another.

Nevertheless, you have come to the right place because I know where to find the names of most companies which make reverse mortgages. Go to www.reversemortgage.org and click on the "Find a Lender" link. The site is operated by the National Reverse Mortgage Lenders Association, and all lenders listed by the group are licensed to originate mortgages in the state you choose. Also, all have agreed to the trade group's code of conduct. Check the Web site.

Feedback

Regarding my recent responses to readers asking about insurance coverage for vacant land, Susan Erkfritz of State Farm in Newbury Park, Calif., writes to say that many insurers will extend coverage to all vacant land owned by their policyholders from their current policies for no additional fee.

However, she also points out that there cannot be any construction on the property, not even a shed or outhouse.

"The existence of vacant land is always a question I ask my policyholders when we assist them with their policies to prevent them from buying anything they don't need," Erkfritz says.

Email your comments to rjeditor@dowjones.com.