I recently got a call from a friend whose grandparents (80 years old) were placed into an expensive “no documentation” residential mortgage loan that is now foreclosing. The grandparents were seeking cash for medical expenses and didn’t qualify for a loan requiring full documentation of income and income sources. However, due to their excellent credit scores, they qualified for a riskier loan product that would forgo the process of verifying financial ability and documentation. Well, the mortgage interest rate adjusted and the medical expenses increased, the grandparents found themselves in an all too familiar situation… unable to afford their home of over 25 years and facing foreclosure. Key point to remember here is that everyone must understand bank loan qualifying standards are set to insure the loan applicant has a clear and certain ability to repay the loan in a timely manner. The mortgage company that determined the grandparents couldn’t afford the mortgage under normal conditions was wrong for suggesting the “no documentation” loan product with an unchanged understanding of the grandparent’s finances. Of course, after managing to maintain stellar credit, the grandparents should have been able to see that the riskier mortgage was more expensive and could reach an unaffordable level. But the thought of receiving an approval by creditors gives a false sense of security that the bank believes the loan requirements were manageable and affordable. In mortgage lending, irresponsibility in one’s fiduciary relationship to the client is inexcusable. The applicants are people… grandparents… who are relying on the guidance of the mortgage professionals and misuse of this trust relationship can lead to heavy fines on the lender. However, when mortgage professional are dealing with the elderly, there are additional laws that prevent and prosecute predatory lenders.
I know it’s not always great to get an unapproved status back on a loan application, but sometimes it for the best. Beware of risky loan products that speak beyond your level of financial literacy and discuss options with unbiased financial professionals (like CPA’s) outside of the transaction. If you feel you or someone else has been illegally advised on a mortgage transaction, contact your state’s attorney general and professional licensing commission arm.