Loans Fraud

Home equity loan fraud

Leading up to the mortgage crisis, home equity loan fraud was rampant. Some fraudulent lenders were charging excessive fees at closing. Others were offering multiple refinances to the same borrower. Still others would ask you to sign over your deed to them if you were struggling to make payments, and then evict you from your home once you did. Thanks to aggressive government crackdowns, these schemes are no longer active.

The Federal Housing Administration (FHA) has enacted several rules and regulations that make the homeowner less vulnerable to home equity loan fraud. They now require that the borrower must receive specific information on interest rates and fees. As a result, it’s less likely that a lender can take advantage of an uneducated borrower. The FHA also has a list of fees that the lender may not charge a borrower. If your lender tries to tack these on to the loan, you can file a complaint directly with the FHA.

Unfortunately, identity fraud thieves have discovered a whole slew of possible targets in the home equity loan arena. If a criminal is able to get his hands on vital personal information, like your Social Security number, birth date, and/or passwords to your bank accounts, he can do severe damage. Once a thief has this information, he can set up telephonic banking privileges on your account, then transfer money from your HELOC into his own personal bank account. Once that happens, the criminal – and the money – disappears forever.

In order to protect yourself from identity theft that could lead to home equity loan fraud, take the following precautions:

1. Always use a shredder to trash documents that may expose your personal financial data. These should also be used for all those credit card offers that you get in the mail. If a criminal gets his hands on this, he can open up credit in your name.
2. If you’re sending out checks, do it at the post office or at a drop-off box, and not from your home mailbox. Mail theft is a common crime.
3. Don’t use your mother’s maiden name, or anything that can be obviously tied to you, as a password. Make up a password that has nothing to do with your vital information.
4. Never give out your Social Security number to someone you don’t know who initiates a phone call. If you don’t know the caller, ask for a callback number … then, YOU make the call, to verify that the caller is legitimate.
5. Don’t put your telephone number or your Social Security number on your checks.
6. Monitor all your bank and credit card statements carefully every month. If something looks suspicious, you can catch the problem early and save yourself time and money.

Most people will never encounter home equity loan fraud, but if you choose to tap your equity with a HEL or a HELOC, it’s better to be safe than sorry.

If your problems are greater than a short-term reduction would solve, your lender may offer to take a lump sum to close out your loan. This is called a settlement offer. This may be the best possible outcome for a homeowner who wants to keep his house, but can’t afford the second lien payments. No matter what happens, though, your credit score will take a huge hit, and it may be some time before you can get any type of mortgage again.

Start here to compare home equity rates from top lenders in our network.