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On Real Estate: Identifying common complaints against mortgage companies

January 19, 2011

By Jim Hagerty
Staff Writer

While the economy shows some signs of improvement, the mortgage industry is still licking its wounds from a rough few years. Lenders continue to be bought out by larger firms, and thousands of borrowers still find themselves in the midst of servicing and marketing nightmares.

Complaints against mortgage companies are common. A number of complaints can be attributed to simple oversights, while others are quite serious and spawn from dishonest lending practices, many of which occurred before the banking crash. From being charged excessive fees and interest rates to bait-and-switch tactics, several common areas result in angry borrowers who log thousands of mortgage company complaints every day.

Classic bait-and-switch

Some dishonest loan officers will entice borrowers to apply by advertising extremely low interest rates. Borrowers complete applications with the idea they will obtain a fixed-rate loan. However, after loans are underwritten, borrowers learn that fixed-rate periods are temporary, and their loans will convert to adjustable loans, which can come with higher interest rates after six to 12 months.

Although this tactic is becoming more difficult to master, it is used, especially by originators that are desperate for business. It is important to know what type of loan you are applying for and understand amortization schedules.

Hidden junk fees

Hidden junk fees were once a slick way for loan officers to make extra commissions. Even as subprime loans are all but gone from the market and state predatory laws are enforced, it is still possible for lenders to slide an unnecessary fee or two into the loans they make. Some fees are disguised as standard fees, such as “administrative fees” and “consulting fees,” which are simply fees paid directly to the lender, which then splits them with their loan officers. This practice generates a significant number of complaints as borrowers are often unaware of such charges until after their loans fund.

Account billing problems

One of the most common complaints mortgage companies field on a daily basis are those surrounding billing errors. It is common for borrowers to send in regular monthly payments and, soon after, experience collection calls. Most problems arise when servicing officials fail to correctly credit borrower accounts. Billing problems are common when loans and servicing are transferred from one lender to another. A similar problem arises when borrowers send lenders monthly escrow payments, which are sometimes incorrectly applied to accounts set aside to pay real estate taxes and hazard insurance.

If you are experiencing problems with your mortgage, it is important to contact your servicing department before issues fester into larger dilemmas. If you feel you are a victim of fraud, contact your state’s banking regulatory agency. In Illinois, that office is the Illinois Department of Financial and Professional Regulation. It can be found at idfpr.com.

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