NEW
Q.
We have a membership in a stock coop and are having great difficulty
in refinancing our apartment. Are Banks and Savings and Loan Associations
permitted to make loans on coops?
A.
Yes. They are authorized to do so, but most will not make such
loans. Comparable condominiums are worth substantially more money
and are easier to sell. Consequently, lenders prefer condominiums
to coops.
Q.
What is the difference between a mortgage broker and a mortgage
banker?
A.
A mortgage broker is a real estate broker that represents either
a mortgage lender, loan applicant, or both. A mortgage banker is a mortgage
lender that sells closed loans to investors in what is referred
to as the secondary mortgage market.
Q.
I often see ads by mortgage brokers that indicate “no income verification
- no tax returns . I never see this type of loan offered by direct
lenders. Can mortgage brokers legally originate loans that direct
lenders are unable to originate?
A.
Direct lenders can originate any type of loan that mortgage brokers
can originate.
Q.
I intend to refinance my home in the near future and have not
yet decided whether to go directly to a lender or to a mortgage
broker. What are
the legal requirements to be a mortgage broker?
A.
A mortgage broker must simply be licensed as a real estate broker
by the California Department of Real Estate. There are no other legal
qualifications or requirements.
Q.
I am in the process of purchasing a condominium that I intend
to lease to a friend. The
bank’s loan application asks whether I intend to occupy the property
or not. Is there
any harm in saying that I intend to occupy the property when I
actually intend to lease it?
A.
Making an intentional misrepresentation to a mortgage lender that
is insured by a government agency, or to a mortgage broker or
banker that sells loans to or originates for a government insured
bank or savings and loan association, is a serious crime punishable
by a fine and/or imprisonment.
In addition, the lender can call the loan due and payable.
Q.
Our mortgage broker has a “no income verification - no tax returns
required” loan program available. He says it’s safe to exaggerate
our income on the loan application. How safe is it?
A.
It’s not safe at all. Don’t
do it. Lenders have
the right to verify reported income with the IRS and other sources
after a loan has closed. You and your broker can
be held liable for fraud and numerous violations of the law if
you are found to have submitted a false loan application. You should also get another
loan broker.
Q.
A friend recently had a bad experience with a mortgage broker. He claims that the broker
increased the loan fees and other charges immediately prior to
closing. I am in
the process of applying for a home loan with another mortgage
broker. What do you
suggest I do to protect myself?
A.
I suggest you do the following:
When you retain the mortgage
broker, require that he or she commit in writing to a maximum
brokerage fee and costs regardless of what happens to interest
rates. For example,
if the broker commits to a one percent (1%) brokerage fee plus
$500 regardless of how rates change, you will be protected against
the broker.
In addition, ask for three
references. These
should be clients who have closed loans with the mortgage broker
within the last thirty (30) days. If the broker cannot produce
three current references, it means that he or she does not have
much loan volume. This
is not a good sign that the mortgage broker has clout with the
actual lender.
Q.
Recently, I submitted a mortgage loan application to a lender
that included false financial information.
The loan payments are paid current but the loan is being
reviewed by the lender’s compliance department. Do I have a potential problem?
A.
You may have a big problem.
If a real estate lender finds that the application package
included false information that was material to their decision
to make the loan, three things can happen:
Under federal law, (18
U.S.C.981 (a) (1) (c)), if the loan affects a financial institution,
(even if the loan is not in default), the United States Government
may file suit against the borrower in federal court for forfeiture
of the property given as security for the loan.
While forfeiture is not automatic or mandatory, defending
such an action would be a living nightmare;
The lender can start a
foreclosure action requiring the borrower to scramble for another
loan; and
Under federal law, (18
U.S.C. 1014), the submission of a false loan application to a
financial institution is a federal crime. Substantial fines as well
prison sentences or both, can be imposed
Note that nearly all mortgage
brokers and mortgage bankers utilize the funds of financial institutions.
Recently, a member of a local City Council was sentenced to 21 months in federal prison
for submitting false tax returns and misrepresenting the source
of his down payment to a lender. The lesson is clear. Don’t misrepresent anything
to a lender, and if your loan agent suggests that you do so, find
someone else to represent you.
Q.
What is a wraparound loan?
A.
It is a form of junior financing.
Typically, it is a second trust deed loan. Technically, it is called
an all-inclusive trust deed (AITD) loan.
AITD’s are usually used
when a property is being sold with a low interest rate, assumable
first trust deed loan and the seller is willing to carry back
junior financing.
An example would be as
follows:
Sale Price
$200,000
Existing 1st
TD @ 6.5%
$90,000
Seller Financing $60,000
Down Payment $50,000
The AITD consists of the
existing $90,000 loan plus the new $60,000 extension of credit
for a total of $150,000.
If the seller charges 8.5% interest on the $150,000 AITD
loan and pays 6.5%
on the “underlying loan”, his or her net yield will be 11.5% on
the $60,000 extension of credit.
AITDs can be good for both
buyers and sellers. However,
these loans are complex requiring that both the buyer and seller
be represented by knowledgeable attorneys.
Q.
We recently learned that our mortgage broker accepted a rebate
of $3,000 in connection with our home loan that she did not disclose
to us. She claims
rebates are normal and that disclosure of rebates is not required.
Is she correct?
A.
Disclosure of rebates is required by law. The broker should immediately
write you a check for $3,000. You should report this matter
to the California Department of Real Estate and the local board of
Realtors if the mortgage broker is a member.
Q.
Are mortgage brokers required by law to disclose all the money
they make on transactions to their clients?
A.
Absolutely. Regardless of whether a mortgage broker is receiving
compensation from its client or the lender, the broker must disclose
all compensation received.
The receipt of any secret profit would violate the law.
