In this column, Cody Kessler of Kessler Lending Advisors, a division of Real Estate Mortgage Network, writes about mortgage scams targeting military veterans.
Early this year, the wife of a retired Air Force colonel called me on my radio program seeking advice on what to do about a refinancing deal that failed to deliver what it had promised.
The woman said she and her husband, both in their 70s, responded to a piece of mail that was sent to them by a local company based in Columbia promising to “streamline refinance” their current VA loan. The offer promised a new loan on their home in St. Mary’s County with a lower rate and payment using the Interest Rate Reduction Refinance Loan program (IRRRL) that is insured by the Department of Veterans Affairs.
A representative of the company told her that their 30-year fixed mortgage would start out at 4.75 percent (market rate was 3.25 percent with no points at this time) and would go down every three months until it got to 3 percent, no more than six months after closing. The couple paid thousands of dollars in closing costs and the rate never went down as promised.
This type of scam is becoming more common. Veterans and active duty military members should beware of anything that they receive in the mail offering them any type of mortgage financing. Be mindful that any letter regarding your mortgage that is not from the VA mostly likely is a direct sales solicitation from a company that has paid money to get your financial information regarding your loan. These companies often misrepresent the program, stating it is part of the economic stimulus package, or pose as groups working directly with the VA. As such, they are known to use unscrupulous tactics to try and get you to refinance your loan through them. (To get an idea of some of the scams out there, click here to read about what veterans are saying.)
If you receive a questionable solicitation, contact the Department of Veterans Affairs at (202) 273-5770.
Here are tips to help you protect yourself from these types of scams:
• Be aware of who is sending you the offer in the mail. As I mentioned before, the VA does not contact people directly about mortgages, so keep this in mind when reading any offer. Letters are also crafted to look “official” to give the impression that they are from your current lender, when, in fact, they are not. Be sure to read the fine print disclosures that are on the letter, as it will tell you the source and what the intention of the letter is. This is required on all solicitations so only respond to communications from trusted sources.
• Don’t ever pay any money upfront to any company. If someone is asking you for any amount of money upfront, that’s your cue to walk away. Reputable mortgage banks and companies don’t do this.
• Before responding to any offer in the mail, check with other banks that you or someone else you know has dealt with before to ensure that you have properly shopped the loan terms presented to you.
• Don’t pay any points or fees that are out of the norm. A good mortgage bank should only be charging roughly $800 to process and underwrite the loan and all VA appraisals in our geographic area are $400 (set by the VA). Anything outside of these two numbers should be looked at closely to determine what they are and why they are being charged.
• Choose mortgage terms that fit your needs and don’t be sold on products that don’t. Be conservative when choosing your mortgage terms. A 30-year fixed should always be a top option. Never get sold on taking an adjustable rate mortgage just so you can get a temporarily lower payment. This is just another way for companies to come back to you and refinance you out of that ARM into another product at a later date and time, simply to make more money off of you.
• Don’t do business with a company that is outside of your area. A company and its representatives should be licensed in the state that you live in, and should physically be in that area. This is key in case something goes wrong. Don’t just speak with a customer service representative; insist on speaking with a licensed mortgage originator. Companies that market outside of their “brick and mortar” footprint generally are the ones that operate in such a manner.
• Know what your VA loan benefits are and how the VA protects you as a consumer. The unfortunate reality is that most veterans have some big misconceptions about what the VA provides for in regards to loans. Click here to view more information on the VA loan program.
Kessler can be reached at email@example.com.