You should be raising your eyebrows if your lender or broker asks you to falsify your financial information in a home loan application, or if you're offered a repayment-free period.
You’ve seen the ads in the Sunday paper: “Self-employed? Impaired credit record? Let us do a deal for you”; but how do you tell the dodgy mortgage deals from the great-value ones?
Unfortunately loan scams and mortgage fraud are both realities in Australia and scammers and fraudsters tend to go after the most vulnerable customers.
It can be particularly difficult to get a home loan if you are self-employed or if you’ve had difficulties with credit in the past but that doesn’t mean you have to fall victim to a scam. Here’s the YMM guide to the mortgage dodgies.
1. Loan scams
Loan scams are most likely to come to you via an “out of the blue” phone call or e-mail. They usually offer:
• Very attractive, low interest rate
• Easy and quick application process
• No credit checks, impaired credit record not a problem
Some even promise a cooling-off period or unconditional right to cancel if you’re not completely satisfied.
Sorry folks, you should already be starting to believe this deal is too good to be true. According to ASIC, alarm bells should definitely start ringing if you are asked to do (or offered) any of the following:
1. Make a decision to accept the deal and sign contracts quickly
2. Transfer money to their account to cover fees and taxes in advance of getting the loan
3. You’re offered a repayment-free period where you don’t have to make any payments for 12 months, for example
The best way to avoid scams is to ensure you check out the company’s name and business address and make sure it has an Australian Credit Licence. You can run an online check
of the licence number. Make sure the company is a registered Australian business with a legitimate CAN.
If any of this information is not provided or can’t be verified, don’t deal with the person, no matter how good the offer sounds.
2. Soft fraud
Unfortunately it’s not just outright scammers you have to be careful of. Every industry has its dodgy operators and home loans are no exception. The move to national regulation of the credit industry is supposed to clean up the “bottom end” of the market but its early days yet.
Meanwhile, steer clear of lenders and brokers who ask you to do any of the following:
1. Falsify your financial information in an application form by inflating the amount of income you earn, showing less debts than you actually have or telling little white lies about savings
2. Falsify the value of your home if you are refinancing. Dodgy valuations can be used to make your home look like it’s worth more than it really is. This can help with a loan application as it means you’d be borrowing a lower percentage of the property’s value than if the valuation was accurate
3. Being pushed into a low-doc or short-term interest-only loan at a high interest rate. This is particularly problematic if you can’t really afford the repayments but feel that you have to accept the offer as it is the only one on the table
4. Offered a rent-to-buy scheme. These can be high risk, according to ASIC, as you have no rights to the property during the rental period apart from the standard protections given to any tenant. If you fall behind with your rent or can’t meet your financial obligations at any time during the rental period you could lose your rental credits and any money you’ve paid and void your “option to purchase” agreement. If you can’t get a bank loan at the end of the rental period you may end up in the same position
5. Offered vendor finance. This is where the owner of the property offers you finance to purchase it. The catch is as you repay the vendor you don’t actually have any legal, ownership rights to the property or to the money you’ve paid off the purchase price. You won’t have ownership rights until you pay every cent you owe. Meanwhile, if the vendor has borrowed money to buy the property in the first place and they default, you could lose everything
3. Outright mortgage fraud
This involves hard-core fraudsters stealing your identity or falsifying documents such as title deeds to extract money from legitimate lenders. This is a criminal offence and a police matter.
4. Just poor behaviour
ASIC is already revoking credit licenses off brokers for offenses such as failing to be a member of an independent, alternative dispute resolution scheme. This is all helping to clean up the bottom end of the mortgage industry.
In the interim it is important to deal with reputable, well-known lenders and brokers. Use the yourmortgage
website to find the right broker or lender for you. Shop around and check that you really are getting the deal of a lifetime before you sign anything.
-- By Jackie Pearson