How Much Fraud Was Committed On Your Loan?

One of the most pernicious aspects of the housing boom was that so many professionals, on so many levels, took advantage of the ignorance of the average American in regards to all things financial. From the local mortgage broker and appraiser to the largest Wall Street firms, it seems everyone played some role in using the government's manipulation of the market to their own advantage.

Since the passage of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA), appraisals for residential properties were to have been done by independent appraisers. But this is now how it works in the real world, as real estate agents, mortgage brokers, and even homeowners themselves will actively seek out appraisers who are willing to inflate (or deflate) the value of a home to meet loan requirements.

Obviously, the widespread use of manipulated appraisals has played a huge role in the myth that real estate values almost never go down. But now that property values have declined, with every homeowner that realizes the loan he or she obtained was $100,000 higher than the value of the property, more of this pressure on appraisers is being discovered.

But such fraudulent tactics and predatory lending practices on the ground put homeowners in positions where they area able to take advantage of laws to fight the lenders who relied on overstated, inaccurate incomes and inflated appraisals. And the practices of the lenders were no better, as many loans were calculated with incorrect Annual Percentage Rates (APR). The APR is the real interest rate that borrowers pay after fees, charges, and other expenses have been added in to the loan and is often higher than the stated note rate.

The miscalculation of the APR, while a blatant example of mortgage lender misconduct, is just one common mistake made on loans. Banks rarely, if ever, explain loan terms thoroughly enough to borrowers to make them understand how their mortgage works. Lenders set families up to fail, and then blamed the victims for failing to understand loan products that the banks should not have made in the first place if they knew borrowers did not know how they would work.

In fact, many lawyers and financial professionals who work for mortgage companies did not understand the complexities of the average subprime adjustable rate mortgage, let alone how the securitization process works, or who would end up owning the loan if it went into foreclosure. So it is inconceivable that borrowers themselves could be expected to know how these mortgages would work, especially since the most they were given in terms of explanation usually meant a couple pieces of paper written in confusing legal language.

Finding the fraud, misrepresentations, and neglect, though, gives homeowners the upper hand in negotiating for a solution to foreclosure. Banks, in order to defend against allegations of mortgage fraud and risk a class action lawsuit or regulatory action, are usually willing to spend tens of thousands of dollars on legal representation. Modifying a loan and offering reasonable terms to borrowers is much less expensive and time-consuming than fighting a lawsuit in a local court for the next two years.

And possibly the best part about all of this is that, with so many laws and regulations floating around, it is almost inevitable that lenders will blatantly violate one or another. But they rely on homeowners to be ignorant of these laws and willingly roll over once the foreclosure process begins. This is one reason every borrower who is threatened by the bank with the loss of their home should have competent research done on the loan.