How To Deal With Crooked Loan Officers

We blogged a while back about why overstating your income on a loan application is, in sum, stupid. So what do you do if your loan officer (who usually fills out the application) overstates your income and tells you to sign?

Before you walk away, make sure you re-read any agreement you may have with the broker. Especially if you are buying a home, you probably do have an agreement with your mortgage broker that says you owe them a penalty if you decide not to get a loan with them. However, if they can’t write you a loan you can handle, you probably are not subject to a penalty. Besides, a broker would have a hard time convincing a court that you should pay them a penalty because you refused to lie on your loan application.

If you’re in the clear, walk away. You don’t want to use a loan officer who wants you to lie on your loan application.

If you can’t qualify for a loan at your real income level, you probably have no business buying that home. Downsize or rent and save instead. SAM GLOVER

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  1. thrillhouse says:

    So what do you do if your loan officer (who usually fills out the application) overstates your income and tells you to sign?

    Inform him that by doing so, you would be committing criminal fraud, and that his role in that would not be un-punishable.

    If you can’t qualify for a loan at your real income level, you probably have no business buying that home. Downsize or rent and save instead.

    Overextending yourself on a mortgage makes you what is known as house-poor. So much of your income will go to paying the note that you will find yourself ‘poor’. The only kind of mortgage you should be interested in is a 15-year, fixed-rate mortgage with payments that represents no more than 1/4 of your take home pay. If its more than that, then its out of your ballpark.

  2. mad_oak says:

    @thrillhouse

    A 15 year fixed and 25% of your take-home pay??? Dear lord, take us back to the stone age. At $50K a year, enjoy your $80,000 tenement and thats IF you don’t pay TAXES AND INSURANCE.

    A 30 year fixed is perfectly fine (hell, there are even good arguments for 5 & 7 year hybrid ARMs)… and 25% of GROSS INCOME is incredibly comfortable.

    As an aside, people roll into the 10 and 15 year fixed mortgages with the best intentions… then life happens, that extra couple hundred a month they are shelling out they suddenly need and they are scrambling to try and refinance at a point that either their income has dropped or their expenses have gone up. Smart is taking the 30 year and making the 15 year payments. Its like a built in insurance policy that costs you maybe a deductible 1/2% a year.

  3. nakmario says:

    As a former, independent, broker I can tell you one thing. Do not sign any contracts with brokers. I had a customer drop out on me like 2 steps before signing – and the amount of work that I put into that case? like a few hours.

    Brokering is a joke, it is a “get away with as much as you can” mentality all around.

    Shop around and use as many brokers as you want. There a**holes make ridiculous amounts of money for how much work they actually do, and get everything on paper (or email).

    Don’t let them pull the bait & switch on you, don’t let them get away with stealing your money.
    There are some honest ones, but when your broker drives a top-of-the-line Mercedez, you should worry.

    My co-worker made $30k a month, selling people Option ARMs – the more debt they sell you the more they make.

    Worst of all, this industry is so unregulated, it will be the downfall of the American Dream – just watch the next few years as millions of people will be driven into foreclosure.

  4. kerry says:

    Our mortgage broker falsified my boyfriend’s income on his copy of our application. Essentially, my boyfriend filled out the application correctly, handed it to the broker who then increased the income by about 20% to get a faster approval. We did not ask him to do this, nor did we know he had done it until the closing, when boyfriend pointed out the monthly income box was incorrect. Our lawyer jumped on the broker, who pled ignorance and made a big show of calling his office to find out how we could correct the paperwork. While he hemmed and hawed our lawyer took us outside to discuss the situation. The long and short of it was a) we would have to reapply for the mortgage and reschedule the closing for another day and b) if the original application my boyfriend had submitted was correct (it was) we weren’t on the hook for loan fraud. Because the monthly payment was what we had originally anticipated, we knew we’d be able to make the payments anyway. Our lawyer told us to just not miss a payment and we’d be fine.

  5. thrillhouse says:

    @mad_oak:

    You can have your creative financing, but look at the difference in the amount of interest you are paying over the life of those 15 and 30-year loans. Staggering.

    $80,000 home on $50k? Are you making no down payment? You can look at it as ‘the stone age’, but there were a lot less people losing their homes back then when they did it the right way.

    And an ARM? Are you kidding me? Don’t even get me started….

    I’m sure you have the best of intentions in getting a 30 and paying it like a 15 – which is fine…. if you do it. According to the government, around 3% of Americans actually pay extra on their mortgage. Most of which have a 30-year. Like you said, life happens.