Mortgage Refinancing - Loan Flipping

If you're falling behind on your mortgage payments, or if you're struggling with growing credit card debt, utilities, and other bills, you may become the easy target of dishonest mortgage lenders or brokers hoping to profit. Solicitations come in a variety of ways-by mail, phone, radio, newspapers, flyers, and even home visits-offering to provide refinancing, fast cash, and a way out of debt. Refinancing to obtain cash translates into a larger loan and most likely means higher interest rates and high-priced refinancing fees. One form of predatory lending con artists use on desperate homeowners looking to refinance is called "loan flipping."

Loan Flipping
Earning trust by using their knowledge and experience, a mortgage lender can talk a homeowner into refinancing their mortgage, even though they'll gain little from the transaction in the long run. Borrowers get convinced to go with a high-rate, no out-of-pocket, but high-cost loan and are advised to refinance again within a short period-often only six months to a year-to obtain a lower interest rate or monthly payment. Unfortunately, the homeowner may not realize that the loan term is longer and the total cost of the loan increases. When borrowers roll closing costs into the mortgage, the cost of the loan increases each time, without any real corresponding benefit to the homeowner. Once you sign the papers, you may find that the loan and monthly payments are much higher than expected-even unaffordable, putting you at great risk of losing your home.

Ballon Payments
A serious twist with loan flipping occurs when a balloon payment is snuck into the fine print. Most homeowners obtain a thirty-year mortgage, but with loan flipping, they may unknowingly agree to a two, three, or five-year balloon payment. At the designated time, the homeowner has to pay off the mortgage or refinance again. If they cannot, they can completely lose their home. It's important to remember that borrowers must first qualify for a loan and there is no guarantee. Of course, the scam artist will be more than happy to do another loan flip, further lining their pockets while leaving the homeowner with even less equity or none at all, and probably burdened by a mortgage they can no longer afford.

Get Help
Scammers promising fast cash and an easy refinance can successfully target consumers overwhelmed by debt and in danger of losing their homes. They know people are willing to do just about anything to keep their home. It's a good idea to seek help and have someone else review the paperwork before signing anything. Even at the last minute, you can always walk away from a bad deal.