What are Mortgage Closing Scams and How to Protect Yourself

Getting a mortgage is one of the biggest investments most people will make in their lives. Our company takes pride in protecting our borrowers’ finances and personal information during the mortgage process, but we can’t do this without their help. Part of our job as a lender is educating our clients on how to protect themselves from the risks of mortgage closing scams.

What are mortgage closing scams?

Mortgage closing scams are a form of phishing that targets people who are obtaining mortgages. The scam attempts to trick borrowers into sending their closing funds (down payment and closing costs) to the wrong recipient by sending false instructions that appear to come from a trusted source. An estimated total of $1 billion in mortgage closing scams occur every year, costing some victims tens of thousands of dollars or more.

Here’s how a mortgage closing scam can happen:

  1. The borrower receives an email, text message or other communication from their settlement agent, lender or another professional working on their transaction.
  2. The message includes instructions for the borrower to send their closing funds electronically. Everything looks good, so they follow the instructions and send their money.
  3. The borrower eventually learns that their closing funds were never received. They show everyone the instructions they followed, but no one recognizes them. These were fake instructions sent by a scammer!
  4. The borrower calls their bank as fast as they can to try to reverse the transfer, but it’s too late. Their money is gone for good, and now their closing is in jeopardy.

How can you protect yourself from mortgage closing scams?

Here are the instructions we provide to our borrowers to help them keep their closing funds safe:

  1. NEVER trust any wire instructions from anyone until you verify the instructions. No matter how authentic an email, text message, phone call, letter, website or other message seems, it can easily be a fraudulent imitation.
  2. DO NOT call, click or use any phone numbers, hyperlinks, email addresses or email attachments you receive in an unverified message. These items may be false or dangerous. If you receive a phone call you do not trust, politely hang up and call a number you do trust.
  3. ALWAYS verify your wire instructions by calling your settlement agent at a trusted phone number. This should be a number you have on file or receive from a trusted source. When you call, be sure to verify any account numbers or names included in the instructions.
  4. ONLY obtain wire instructions from your settlement agent. As a lender, we do not send wire instructions, and if you receive them from anyone but your settlement agent, it may be a sign of an attempted scam.
  5. STOP, think and take your time. Be on your guard if anyone tries to push you to send money immediately or surprises you with last minute changes. Only send your funds after you have confidently followed these steps without rushing.
  6. ONLY send your funds by wire transfer using validated wire instructions from your settlement agent. Never send funds by ACH (automatic clearing house) bank transfer, PayPal, Venmo, Zelle or any other payment transfer method.
  7. IMMEDIATELY notify your bank or wire transfer company and request a wire recall if you believe your wire was sent to the wrong recipient. Do this only by calling phone numbers you trust. Your chances of reversing a fraudulent transfer decrease the longer you wait.

To learn more about how to stay safe from mortgage closing scams, click here to visit the Consumer Financial Protection Bureau’s page on the topic.

What you need to know about forbearance

If you are experiencing financial difficulty due to the coronavirus and you cannot make your payments,  you need to reach out to your loan’s servicer (the company you make your payment to) immediately.

If you are still able to make your mortgage payments, it is recommended that you do so.

Do not participate in a forbearance plan without asking these specific questions:

  • When will the missed payments become due?
    • Believe it or not, some servicers are waiving payments, but then asking for a ‘balloon payment’ at the end of the forbearance term. In other words, you may skip 3, 6 or 12 months of payments but then have it all due, with interest, at the end of that term.
  • Will I still acquire interest during this period?
    • Make sure that your agreement is clear on if, or how much, interest will be charged during the forbearance period. Most, if not all, of these programs are similar to when you get a furniture credit card. You don’t have to pay any interest until the term comes due.
  • Will this impact my credit?
    • If you simply stop making payments without contacting your servicer, and having an agreed upon forbearance plan in writing, you definitely WILL affect your credit negatively.
  • When will I know, for sure, that I can stop making payments and for how long?
    • Get EVERYTHING in writing. If a customer service rep tells you something on the phone, that is NOT a forbearance plan.

You can find more details in the video below.

Why get preapproved for a mortgage?

The spring real estate market has arrived! If you’re considering buying or refinancing a home, getting preapproved for your mortgage is an important first step.

Here are the benefits of getting preapproved:

  • Shows you how much home financing you can receive and how much home you can buy
  • Provides you with a good estimate of what your monthly mortgage payment will be
  • Helps catch issues, save time and reduce stress later in the home financing process
  • Is required by most real estate agents and home sellers before you make an offer to buy a home

Getting preapproved is free, and it can be done easily online or over the phone. If you’re thinking of buying or refinancing a home and would like to get preapproved, get in touch!Programs included on this document are subject to approval based on individual program guidelines and borrower’s credit and underwriting approval. Contact your Draper and Kramer Mortgage Corp. professional for full program details.

What do falling mortgage rates mean for you?

At the start of February, mortgage interest rates dropped to their lowest since 2016.1 Most people know this is good news, but not everyone understands exactly how it may affect them. Here’s a short explanation of the two big ways you may be able to benefit from falling mortgage rates.

Benefit 1: you may qualify for lower payments on a new mortgage

Whether you’re buying a new home or refinancing a current one, the lower your interest rate, the lower your monthly mortgage payment (all other factors equal).

For example, on a mortgage for $200,000, an interest rate of 4.5% (4.643% APR2) would equal a monthly principal and interest payment of $1,013, while a lower interest rate of 3.5% (3.635% APR2) would equal a lower payment of $898.

That’s a savings of $115 a month – or $41,400 over 30 years! The bigger the loan amount and the bigger the difference in rates, the bigger the potential savings.

Benefit 2: you may be able to afford a bigger loan and more home

The lower the interest rate on a new mortgage, the larger the loan you can afford (all other factors equal, once again). For example, a $200,000 mortgage with a rate of 4.5% (4.643% APR2) would have a monthly principal and interest payment that is about the same as a $225,000 mortgage with a rate of 3.5% (3.620% APR2).

Therefore, falling mortgage rates may allow you to buy a bigger home without increasing your monthly payment. The more rates drop, the bigger this benefit may be.

What this means for homebuying

If you’re planning to buy a new home, you picked a very fortunate time to do so. To ensure you can take advantage of today’s low rates, you need to lock in a rate with your lender in case rates increase later. At Draper and Kramer Mortgage Corp., we can lock your rate up to 90 days before your closing if you’re shopping for a home and up to 360 days before closing if you’ve already picked a specific property.

What this means for home refinancing

If you’re planning to stay in your home, it may be worthwhile to refinance your current mortgage. This may allow you to lower your interest rate and monthly payment and take advantage of other benefits such as removing mortgage insurance, getting out of an adjustable-rate loan or taking cash out for college, renovations or other expenses. However, you should weigh these benefits against the closing costs that come with refinancing your loan.

Your next steps

If you’re interested in learning what rate, loan amount and monthly payment you qualify for, get in touch to schedule a free mortgage consultation.

When refinancing an existing loan, total finance charges may be higher over the life of the new loan.

1 Based on the 30-year fixed-rate mortgage average as of February 6, 2020. Source: https://fred.stlouisfed.org/graph/?g=NUh

2 Annual Percentage Rate

How the wealthy make money with their mortgages

If you thought mortgages were just for people of modest means, think again. From the upper class to the uber affluent, the wealthy across American make big use of home loans. Even billionaires see a benefit to financing their homes.

Why do people with these kinds of resources want mortgages? It’s an important question, and the answer shows how a home loan can be an asset to almost anyone. Regardless of your wealth or income, here are the ways a mortgage may benefit you:

Getting into a home sooner

Even if you earn enough to save up to buy a home in cash, doing so may take years. A mortgage is often the quickest way to get into a new home and start enjoying the benefits.

Accessing “cheap money”

Mortgages typically have some of the lowest interest rates of any type of lending product. Therefore, borrowing on your home may be a cheap way to keep more of your money or avoid more expensive borrowing elsewhere.

Avoiding expensive withdrawals

Even if you’re wealthy enough to purchase a home outright, getting at that money can come at a price. Dipping into investments, accessing retirement funds or selling off property can result in fees, taxes or losses. Borrowing on your home can be an efficient way to avoid those expenses.

Making smarter investments

If your mortgage has a 4% interest rate (4.139% APR) and your investment accounts are returning 7%, where’s the best place to put your money? Investing comes with risks, but for many people, it makes the most sense to put their extra money where the expected payoff is highest.

Maintaining financial security

Unexpected expenses are a fact of life, and quickly accessible cash funds are often the most reliable safety net. Having a mortgage can enable you to set aside the cash you need to protect your financial security.

Conclusion

For these reasons, purchasing a home using a mortgage, making the standard payments and refinancing the loan when advantageous can be a wise financial strategy. It may even be beneficial to increase your mortgage balance at times by taking cash out to consolidate debt or put toward a home renovation, college tuition or another investment.

This doesn’t mean simply buying a home or getting a mortgage will guarantee you wealth. It does mean, however, that if you want to imitate the successful habits of the affluent, you can start by looking for opportunities in your home financing. Contact us for a free mortgage consultation for your specific situation.

Draper and Kramer Mortgage Corp. does not provide financial planning, investment, tax, accounting or legal advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, financial planning, investment, tax, accounting or legal advice. You should consult your own financial planning, investment, tax, accounting or legal advisers before engaging in any transaction.

Do You Really Need Title Insurance?

Borrowers often ask me if they should purchase title insurance when buying a home. I always recommend that they speak with their attorney so as to make an informed decision. I have always purchased title insurance on the properties I have purchased as I am a believer in insurance as a foundation to any solid financial plan. Why do buyers question purchasing title insurance when the risk of loss is so high? After all, no one seems to question the need for homeowners or rental insurance. I believe the reason is twofold: (1) buyers do not understand the benefits of purchasing it, and (2) title insurance is unlike other types of insurance in that it covers issues that have already happened.

Indeed, there is a long list of risks covered by title insurance, but basically what the buyer is hedging for are the unknown or hidden hazards that might jeopardize his or her ownership in the home. Hidden hazards may include:

  • Liens that were not revealed in title exam or made known to settlement agent prior to closing. Normally, a title exam reveals any liens on the property which need to be paid off and released prior to closing. If, however, the title examiner overlooked a judgment, tax, or mortgage lien on the property or failed to note it in the title exam, the buyer would be liable to pay the lien incurred by the previous owner.
  • Boundary line issues that an accurate survey would not reveal.For example, if a survey failed to note that a neighbor’s shed encroached on the purchaser’s property, title insurance would cover the cost of removing the shed and resolving any accompanying boundary line dispute.
  • Forgery or lack of authority. If there was a forged signature on the deed in the chain of title, or a person or corporation signed a deed without authority to do so, the transfer of ownership to the buyer would be in question.
  • An unknown heir of a previous owner came forth to claim ownership in the property. For example, suppose a seller passed away and his three children sold the house to a purchaser. If an unknown fourth child later came forth to claim his quarter ownership in the house, the purchaser’s title to the property is in jeopardy.
  • Instruments executed under an expired power of attorney. 
  • Mistakes in the public record at the county in which the property lies. 

While lenders mandate that owners purchase lender’s title insurance (which only protects the lender’s interest in the property), homeowner’s title insurance is completely optional. It is a one-time fee that covers the owner for life.

 

Why Is There So Much Paperwork Required to Get a Mortgage?

Why is there so much paperwork mandated by the lenders for a mortgage loan application when buying a home today? It seems that they need to know everything about you and requires three separate sources to validate each and every entry on the application form.

Many buyers are being told by friends and family that the process was a hundred times easier when they bought their home ten to twenty years ago.

There are two very good reasons that the loan process is much more onerous on today’s buyer than perhaps any time in history.

1. The government has set new guidelines that now demand that the bank proves beyond any doubt that you are indeed capable of paying the mortgage.

During the run-up to the housing crisis, many people ‘qualified’ for mortgages that they could never pay back. This led to millions of families losing their home. The government wants to make sure this can’t happen again.

2. The banks don’t want to be in the real estate business.

Over the last seven years, banks were forced to take on the responsibility of liquidating millions of foreclosures and also negotiating another million plus short sales. Just like the government, they don’t want more foreclosures. For that reason, they need to double (maybe even triple) check everything on the application.

However, there is some good news in the situation.

The housing crash that mandated that banks be extremely strict on paperwork requirements also allowed you to get a mortgage interest rate around 4%.

The friends and family who bought homes ten or twenty years ago experienced a simpler mortgage application process, but also paid a higher interest rate (the average 30-year fixed rate mortgage was 8.12% in the 1990s and 6.29% in the 2000s).

If you went to the bank and offered to pay 7% instead of around 4%, they would probably bend over backward to make the process much easier.

Bottom Line

Instead of concentrating on the additional paperwork required, let’s be thankful that we are able to buy a home at historically low rates.