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Illegal proposal from mortgage broker?


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I recently went to a mortgage broker and they suggested the following program:

They would attempt to get a mortgage for me with the highest rate(the points above par would goto them as commission). Then, they would refund me a portion of their comission(probably 50%) in a check at closing. Then, 6 months later, I would refinance and do the same thing again and again, keeping monthly costs very low. They also said that they would pay closing costs every time I refinanced after the first. They claimed that this was a way to lower payments. IE, say I have a 7% interest only mtg. (but i could get 5%) on a 100k mortgage, thats $1000 (1%)that they refund to me. Then, they added the extra skipped pmt on the house due to the refi 583.33. SO, they claimed to have saved me 1583.33 in 6 months, yielding a savings of 263.88/mo. Then, comparing to a 5% mortgage pmt of $416.66, they said that my actual pmt was $319.45 with this program(3.83%). However, I countered that the interest of 583.33 was added to the principal b/c when I refied I missed 1 pmt. SO, I didn't save that money. But, with savings then of 166.66, my actual payment becomes $416.66, AND the balance has increased by one payment. Doing this over and over again would keep increasing the balance of the mortgage and not really save me any money. It would also overexpose me to interest rate risk. However, they "claimed" that this was a new and ingenious investment program. My question: Isn't this illegal? Getting people to refi over and over again while they keep paying the broker's fees doesn't seem to make sense. However, I noticed that if they refunded their entire comission, it would be profitable if you did it every 6 months? Has anybody used this program or idea before? Is it illegal? It seems that it would be a good idea if interest rates were going down. However, they are going up now. (I'm in IL btw)

Thank you

SB

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This is not legal as far as I know and please do not go ahead with it you are better off taking a loan with the proper rates and saving your money the honest way. This is a way for this guy to keep making money over and over .Illinois has very strict guidelines which I would say this guy is not meeting.

 

cheryl robinson

serving 48 states

plcl@aol.com

:D

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My question: Isn't this illegal?

 

Absolutely. It's the textbook definition of "churning".

 

Refinancing Warning Issued On 'Churning'

 

Churning was banned by the U.S. Department of Housing and Urban Development more than a dozen years ago.

 

I'd ask the loan officer to explain this to you in an email, then forward it to your local HUD office so they can be prosecuted.

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I recently went to a mortgage broker and they suggested the following program:

They would attempt to get a mortgage for me with the highest rate(the points above par would goto them as commission).  Then, they would refund me a portion of their comission(probably 50%) in a check at closing.  Then, 6 months later, I would refinance and do the same thing again and again, keeping monthly costs very low.  They also said that they would pay closing costs every time I refinanced after the first.  They claimed that this was a way to lower payments.  IE, say I have a 7% interest only mtg. (but i could get 5%) on a 100k mortgage, thats $1000 (1%)that they refund to me.  Then, they added the extra skipped pmt on the house due to the refi 583.33.  SO, they claimed to have saved me 1583.33 in 6 months, yielding a savings of 263.88/mo.  Then, comparing to a 5% mortgage pmt of $416.66, they said that my actual pmt was $319.45 with this program(3.83%).  However, I countered that the interest of 583.33 was added to the principal b/c when I refied I missed 1 pmt.  SO, I didn't save that money.  But, with savings then of 166.66, my actual payment becomes $416.66, AND the balance has increased by one payment.  Doing this over and over again would keep increasing the balance of the mortgage and not really save me any money.  It would also overexpose me to interest rate risk.  However, they "claimed" that this was a new and ingenious investment program.    My question: Isn't this illegal?  Getting people to refi over and over again while they keep paying the broker's fees doesn't seem to make sense.  However, I noticed that if they refunded their entire comission, it would be profitable if you did it every 6 months?  Has anybody used this program or idea before? Is it illegal?  It seems that it would be a good idea if interest rates were going down.  However, they are going up now. (I'm in IL btw)

Thank you

SB

 

 

bernsten

 

You have gotten some excellant advice here. As others have stated, what is being proposed is quite illegal. I agree with Shane concerning reporting the broker, however, I would suggest that you contact the state and federal agencies first. They may want to use your help to set up a sting operation against this type of shady operation. Requesting something in writing may scare them away and leave them to prey upon someone else. However, I would also bet that you are not the first person they have approached with this scheme and there may well already be a papertrail.

 

The bottom line is that people like this need to be out of the business completely.

 

 

fla-tan

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