Posted on 09/15/2006 11:27:21 AM PDT by ex-Texan
Mortgage Salesmen Whose Tricks Fund Lavish Lifestyle
THOUSANDS of hard-up families are being ripped off by ruthless mortgage brokers who've been dubbed the Ferrari Kings because of their lavish lifestyle.
Homebuyers have been shafted by as much as £5,000 by firms exploiting their poor credit rating.
Hundreds of firms selling so-called sub-prime loans are being probed by the Financial Services Authority.
They earned their name in the industry as so many of them own high-powered Italian sports cars.
The salesmen prey on vulnerable families with less-than-perfect credit ratings - those who can't (or fear they can't) get a home loan from a mainstream lender.
When another company seems more than happy to lend, they grab the offer with open arms.
The bad news is that they've got to pay thousands for the privilege - and accept an interest rate that's over the odds. But they sign up anyway because they're scared of missing out if they don't.
The probe will be the second in a year into the practice by the watchdog.
Directors and salesmen are being quizzed and their paperwork examined. The regulator investigated this controversial £40billion mortgage market a year ago and found several serious failings in the way deals are sold.
Similar findings again will result in guilty firms being fined or banned.
Sub-prime mortgages account for around 40 per cent of lending as more and more people are sucked into expensive deals.
More than 9.1 million of us were refused credit by mainstream lenders in 2005, according to Datamonitor.
But the fear is that borrowers are being sold more expensive mortgages simply because providers pay more commission to advisers on these deals than on mainstream products.
An adviser selling a sub-prime mortgage can expect to pocket commission of one per cent of the total mortgage. On a mainstream mortgage he would get half that or less.
For example, on a £100,000 sub-prime mortgage an adviser would pick up £1,000 in commission, while selling a mainstream mortgage would earn him between £350 and £500.
But the customer gets stung too as our table (right). Many sub-prime brokers will charge you fees of up to 3.5 per cent of the loan.
That's £3,500 on a £100,000 loan. Many borrowers are persuaded to add this fee to the loan, costing them thousands extra in interest over the years.
"Borrowers need to keep a close eye on the fees they are being charged," warns Mark Chilton, chief executive of Purely Mortgages. "You should be looking at the fee and asking yourself: 'Is my mortgage going to buy this man a Ferrari?'
"Sub-prime brokers are known as the Ferrari Kings of the mortgage industry because so many of them have Italian sports cars parked outside their offices."
Mr Chilton adds: "The good news for borrowers with problems is that some lenders are willing to give them a sympathetic hearing, but you need a good broker who deals with the whole market and who charges low fees to source the best deal for you.
"Sadly, too many brokers put borrowers in a sub-prime category without checking if a prime deal would be available. And the main motivation is money as they are paid higher commissions on sub-prime sales.
"Borrowers going down this route are often desperate. They take the first deal they are offered because they are relieved to have found a lender who will take them."
Most borrowers don't realise that some subprime brokers have close relationships with lenders. For instance, TML is a subsidiary of lender Kensington, which did £3billion worth of business last year, and National Guarantee is a subsidiary of GMAC, which lent £7billion.
Credit list criteria vary from lender to lender - making it hard for borrowers to work out whether they are sub-prime or not. Our table gives examples.
In fact, someone with minor county court judgments for unpaid debts from several years ago who has now sorted out his problems may be considered for a "prime" mortgage from a mainstream lender such as Abbey.
But one missed payment in the past 12 months would make him unlikely to be accepted by any mainstream lender.
Borrowers can ensure that they get the best mortgage for their circumstances by consulting a no-fee or low-fee broker.
"Many borrowers assume they will be rejected by a mainstream lender without even trying," says David Hollingworth of no-fee broker London & Country.
"But if they go direct to a sub-prime lender they are cutting off any alternative options."
Brokers are duty-bound to give the best advice to their clients, but the FSA's earlier probe found many did not ask enough questions to ensure they were giving the right advice.
They also failed to keep proper records, and some were found to be helping clients inflate their income to enable them to get a mortgage which they could not really afford - storing up potential problems for the future.
IMPROVE YOUR RATING
CHECK your credit file by logging on to www.experian.co.uk/creditchecks before you approach a lender. If it lists debts which have been repaid, get the file amended.
MAKE sure you are on the electoral roll. You can be turned down for credit if you are not.
IF debt problems are down to unexpected redundancy, illness or divorce you can have a notice of correction added to your file.
AVOID organisations offering to repair your credit file for a fee. Anything that can be removed or amended can be done for free.
Perhaps there are spam artists making a killing on my favorite web forum...
Since all you care about is the housing market, why do waste so much bandwidth on a conservative political forum?
Fearmongering blogpimpery.
of course he is. anytime a market is hot, the brokers buy ferraris. why do you think it's advertised on every bloody webpage, billboard, and infomercial?
Why spend so much time parrotting the main stream media.
I hear enough of these stories every day from them.
Why do you think you are saying something new?
Yeah that!
'Cuz he's a rat, trying to talk down the economy so rat's get elected.
Why would someone who needs a subprime loan spend over $200,000 on a house? Sorry, my give a damn is broken.
Ping, fyi.
Fraud? People with poor credit who don't shop around are paying higher fees. That's not fraud.
Because the eeeeeevil brokers forced them into something they shouldn't have even considered in the first place.
Stupidity is not only painful, it's expensive.
Fixed it.
And we can afford the house.
Now for others, dunno.
Now that's a great point. Subprimers wanting a 200k home should spend 2 years driving that FICO up up up, while "slumming it" in a 125k home or (heaven forbid) rent.
It's amazing what someone else's mathematical ignorance can buy you.
But there are no homes at $125K. It's a proven fact that all homes cost $800K and up, since everyone lives in California within a mile of the coast.
I've run into these dirtbags, they prey on folks who don't have a lot of finacial savvy, and they use every dirty trick in the book to get them to enter into loans they don't fully understand.
The typical "loan origination fee"? About 10 grand. What you get? Ripped off.
A U-haul is cheaper than bankruptcy
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