Resolution #3: don’t overstate your income on a loan application
We see a lot of this. Someone comes in for a consultation who is in trouble financially. They can’t afford mortgage payments, and so they come to see me with a story about how their mortgage broker predatorily convinced them to get the mortgage loan. As evidence, they point to their vastly overstated income on the loan application. When they do this, we point to their signature at the end of the loan application.
Was the broker breaking laws and preying on the consumer? Probably. The problem is that the consumer–on paper, at least–was complicit in the fraud, which was perpetrated primarily on the lender (i.e., the bank who actually writes the check), not on the consumer.
The moral? Don’t sign loan applications that overstate your income. If you can’t afford the loan, don’t get it. Mortgage brokers are paid at closing. They don’t care if you ever make a payment on the loan. They are not looking out for your best interests, but for their own. They are paid on commission not (usually) by you, but by the lender.
This is another reason to get an attorney of your own, but the bottom line is don’t overstate your income–or anything else–on a loan application. Instead, buy a cheaper house. Or keep renting until you can actually afford to own.
Related: Minnesota’s revised predatory lending law,Don’t finance your car with your home equity loan,Mortgage denials for Native Americans,
[...] For a short time, you have more money. But then you spend it. Now you have to pay it back. Your lender assumes you make more money than you really do and oh look, they expect you to pay more than you can. Says consumer lawyer Sam Glover: “We see a lot of this. Someone comes in for a consultation who is in trouble financially. They can’t afford mortgage payments, and so they come to see me with a story about how their mortgage broker predatorily convinced them to get the mortgage loan. As evidence, they point to their vastly overstated income on the loan application. When they do this, we point to their signature at the end of the loan application.” [...]
My comment regarding this post on Consumerist:
I didn’t outline this in my post, but it does matter whether you go to a mortgage broker or a bank. Since the bank is writing the check, they tend to require pretty serious verification. Once the in-house mortgage broker finishes the app, it goes to underwriting down the hall.
With a mortgage broker, the broker prepares the application and shops it to several lenders.
We’re talking about brokers with few scruples here, so they aren’t shopping apps to the most scrupulous lenders. These lenders usually plan to sell the loan within a few weeks, anyway, so they don’t mind so much if the numbers aren’t accurate. It isn’t their dollars on the hook, or at least it won’t be for long.
To me, it sounds like hot potato, and each purchaser of the loan is just praying that they didn’t get stuck with a borrower who couldn’t afford the loan. But if they do, hopefully the broker’s appraiser didn’t also overstate the value of the home, and they should get a fair amount back.
This all leaves the consumer holding the bag, as it were, since they are the one who gets foreclosed on, kicked out of their house, and left with a terrible credit rating for years.