Protection from Reckless Mortgage Lenders

In every shipment of McIntosh and Granny Smith, there’s bound to be a few bad apples. Finding them can be challenging, though, because they’re well hidden among many good pieces of fruit. It’s the same situation when it comes to mortgage lenders. While an overwhelming majority of them are honest, there are bad apples in the group, and the Federal Housing Administration (FHA) is having trouble weeding them out.

The problem occurs because the FHA doesn’t have the legal authority to curtail dishonorable executives, once they've been banned, from finding work with other mortgage lenders. According to an article in The Washington Post, 34,000 mortgages have been issued during the past two years by a dozen FHA lenders who are employing people who are convicted felons, or who previously worked for firms that were banned by the agency. And it’s possible that these nogoodniks are up to their fraudulent ways again.

Checking out your mortgage lender

The best way to protect yourself from falling victim to a sketchy mortgage lender is to do research. The Internet is your friend when it comes to background information. If you’re working with a company other than a well-known bank, type the company’s name into a search engine and see what comes up. You may find links to articles detailing problems. You should also check with the Better Business Bureau. There may be consumer complaints or, if you look further into the report, you may find that a company is misrepresenting themselves in some fashion. That’s a cue that this is not the best mortgage lender for you.

Take Lend America, for example, a company that was banned by HUD last year when the firm was accused of originating fraudulent loans. A quick search in Google turns up that the Vice President of the company has been banned for life from the FHA.

Another company, Somerset Investors Corp., looks relatively clean in a Google search. But if you check their Better Business Bureau (BBB) report, you’ll discover that it misrepresented itself by saying it was a member of the BBB when it wasn’t. This may not seem like a big deal, but when an organization is unscrupulous in one area, it’s likely it will be in another, as well. In the case of Somerset, you would have made a good decision. The executive director, Gregg S. Marcus, pled guilty in 1998 to federal tax evasion after his previous company was investigated for making false loan applications.

Congress has passed legislation that bars anyone who has been convicted of a felony that “involved an act of fraud, dishonesty, or a breach of trust, or money laundering” from working for an FHA Lender. But it’s a law that’s extremely hard to enforce, because it’s difficult to identify where these individuals may currently be working.

Most mortgage lenders are honest and will make sure that you get a loan that’s suitable to your financial needs. By doing a little Internet legwork, you can identify and avoid the bad apples, and the new trees under which they may be blooming.