Arizona Group Warns of High-Cost Mortgages
A consumer-rights group is warning people obtaining Arizona mortgages to read and understand the documents so that they don’t lose their homes.
Sophia Tesch of East Valley ACORN said the desire of many in the mortgage industry to make loans at all costs has led to abuses. She said lenders and mortgage brokers have ignored borrowers’ ability to pay and put them into loan agreements that are bound to go into default.
State Rep. Steve Gallardo, D-Phoenix, even went so far as to suggest at a Tuesday press conference that the Legislature should outlaw certain types of mortgages. He specifically complained about short-term loans that have affordable payments — at least until the final “balloon” payment comes due.
But Gallardo said the simpler, and potentially more politically acceptable, option may be better education of would-be borrowers. The call for more consumer education is getting the backing of Stan Lund, the incoming president of the Arizona Association of Mortgage Brokers.
He said something more is needed: licensing of all loan officers to ensure that they are accountable.
Lund said he has seen more fraud committed this year in Arizona than ever before, as loan officers put borrowers into inappropriate mortgages they can’t afford or steer them into higher-interest loans even though they qualify for something with lower rates. He said a loan officer who commits some misdeed might be fired by the broker or the bank.
“But they go right down the street and get a new job,” Lund said, because they have no license that can be revoked.
He said licensing won’t stop all fraud. “But it would stop it the second time.”
Lund said the legislation was blocked this year by Sen. Pam Gorman, R-Anthem. She declined to comment, saying only through an aide, “It’s a bad bill.”
Tesch said some loan officers try to persuade people to sign documents that may or may not match their understanding of the terms on a home purchase loan.
“Consumers need to know that if something does not look like what you discussed with your mortgage broker, don’t sign it,” she warned. Tesch said find someone else to review it, whether her organization or any other nonprofit group.
Tesch said there also are situations where loan officers put in false information about borrowers, including their income, to try to get them a loan for which they might not otherwise qualify. That catches up with homeowners when they cannot afford the monthly payments and defaults.
The Senate already has given preliminary approval this year to legislation to make it a crime to knowingly use false or misleading statements in a mortgage application. That bill awaits a final vote before going to the House for review.
Gallardo said most people lack the expertise to review complex legal documents. And that can be complicated when borrowers don’t read or understand English. He said some new laws on disclosure may be appropriate.
ACORN also supports some additional laws, including one to prohibit lenders from trying to get a borrower who qualifies for one type of loan or interest to take another. But Tesch conceded legislation might not be necessary if consumers better prepared themselves.
“If you have a high credit score and you know that you can get a 30-year fixed (rate) or better mortgage, do not be fooled into thinking an adjustable rate mortgage is going to be a better deal,” she said. “You really need to do your homework before you go.”
Gallardo said there needs to be more “financial literacy.” For example, he said many borrowers are unaware of adjustable-rate mortgage pitfalls. These have relatively low interest rates and commensurately low payments during the first few years. But the lender protects itself against inflation with provisions which allow rates to rise — often sharply — in later years.
“They’re not aware that in three years or two years that rate is going to fluctuate,” Gallardo said. “So they’re going from a $500-a-month house payment all the way up to a $1,000-a-month house payment.”
SOURCE: The Arizona Daily Star