Are mortgage scams back?

October 28, 2009 2:31 PM

Is this a mortgage scam?

I have an 80-10-10 mortgage (put down 80% in 1 loan with a great interest rate, put down 10% in a 2nd loan with a lousy interest rate to avoid paying PMI, and put down 10% as a down payment). The bank holding the 2 mortgages on my house (Amtrust) has contacted Quicken Loans and given them information about the smaller loan. Apparently Amtrust wants to unload my loans. Amtrust says they will pay off 5% of the principal of my 2nd loan and will pay for an appraisal. If it all works out - i.e. my credit score, income are still good and my house is appraised high enough, the 2 loans will be consolidated into 1 loan at an interest rate such that my monthly payments will be lowered by about $300, without me paying any costs of refinancing. Quicken Loans thinks my property value has gone up quite a bit since I bought. I called Amtrust's mortgage 800# and they say this is legit and they've been doing this for about a year. But they're mortgage companies, so I'm nervous.

So a few questions:
- This sounds to good to be true. Is it a scam?
- If my house is appraised substantially more valuable than when I bought, does the appraisal I do through the refi process automatically make my property taxes go up?
- Anything I should be wary of?
- Why wouldn't Quicken Loans just buy my 2 loans from Amtrust?
- Has anyone heard of this sort of thing?

posted by n'muakolo to work & money (10 comments total)

1) If you think something sounds too good to be true, it's quite likely to be a scame.

2) You would have to contact the taxing authority for your municipality.

3) Wary of? You seem to think it's a scam.

4) You would have to ask Quicken Loans. My guess is many banks these days do not want bad assets (loans) sitting on their balance sheet, and they may be gun shy about buying loans to a guy who has two mortgages on the same property.

5) I haven't heard of this kind of thing.
posted by dfriedman at 2:35 PM on October 28

Your interest rate would lower, and your monthly payment would decrease, but would the term of the loan increase (meaning you'd be paying longer)? Or would there be some sort of balloon payment after a certain number of years?
posted by Lucinda at 2:43 PM on October 28

The finance forums at Fatwallet.com are full of mortgage industry people who talk about this kind of stuff. I would recommend asking there also.
posted by Mid at 2:43 PM on October 28

Mortgage lenders have always sold or traded their mortgage portfolios. But usually the borrowers didn't know, because the sale would be done behind the scenes, with the original lender continue to administer the loan and collect the payments, and everything being accounted for between the original lender and the company that bought the mortgage book. As we now know, the mortgage portfolios were bundled together with good loans mixed with bad and it all went horribly wrong. One would like to think that this is not now going to happen and, certainly in the UK, there's much greater scrutiny of any such deals. I would expect that any mortgage lender in the US wanting to sell its mortgage book would also come under scrutiny from the regulators.

Since the mortgage market imploded, nobody wants to buy mortgage portfolios, so lenders wanting to offload them will have to sweeten the deal. Quicken does not appear to have a good reputation.
posted by essexjan at 2:51 PM on October 28

@Lucinda - No. Basically they're describing this like a refi where the original bank pays the cost of the refi as a way to unload the loan.

@Mid - good suggestion. Will do!

I did research Quicken, and found a mixed bag, but do any mortgage lenders have good reputations at this point? (Seriously, not being facetious.)
posted by n'muakolo at 2:57 PM on October 28

Amtrust is on the unofficial troubled banks list (calculated using public data, presumably correlating somewhat with FDIC concern). They are most likely attempting to rebalance their portfolio by shedding some mortgages and other loans.

I don't think it's a scam as these are two big banks and scrutiny in this area is sky-high right now. That doesn't mean it's automatically good for you and you should get an independent eye on whatever deal they present. For instance, you might be able to shop around and find a better deal on your own with a stronger or more consumer-friendly lender -- try a credit union. But Amtrust is obviously trying to sweeten the deal in ways that a third party might not. This is just an incentive to agree quickly. You'd want to run the numbers to see if it's really worth it.

In principle a refi should be good as rates remain historically low.
posted by dhartung at 3:04 PM on October 28

Your interest rate would lower, and your monthly payment would decrease, but would the term of the loan increase (meaning you'd be paying longer)?

Note that even if this is the case, as long as you can pay additional principle on top of your monthly payments, you can still pay off the loan at or before the old payoff date and end up paying less in interest than you would have before. Paying additional principle when possible is a good idea in general, which is why you should always make sure that the terms of your mortgage allow it.
posted by burnmp3s at 3:05 PM on October 28

I financed my original mortgage with the 80/20 two-mortgage deal to avoid the mortgage insurance payment. After a few years my house appreciated and I was able to get an appraisal 25% higher than what I paid for it, so I refinanced everything into one mortgage, also lowering my interest payments. If you're unsure about the deal pay a real estate lawyer to look it over, but still read every document before you sign. At the original closing, we had agreed to a fixed-rate 30-year mortgage, but the financial papers (which they tried to get me to sign without reading) specified a five-year balloon note. The mortgage broker said it was "an oversight," but if I had signed without reading I would still have been liable for the contract. When the housing mortgage crisis hit I knew the people who said they were conned into signing bad mortgages weren't lying. Bankers are just one step above robbers, IMO, and it pays to go in with that assumption, no matter what assurances they give you.
posted by Pistol at 3:15 PM on October 28 [2 favorites has favorites]

It seems like a chat with the lawyer you used to buy the house in the first place might help answer your questions. Or, speak to a 3rd party financial adviser.
posted by Jupiter Jones at 6:51 AM on October 29

At the original closing, we had agreed to a fixed-rate 30-year mortgage, but the financial papers (which they tried to get me to sign without reading) specified a five-year balloon note. The mortgage broker said it was "an oversight," but if I had signed without reading I would still have been liable for the contract.

Yeah, a mortgage contract is one of the most important contracts you'll ever sign, so it makes sense to make sure you actually understand and agree to everything. Having a lawyer look over it and walk you through it paragraph by paragraph translating it from legalese to plain English is worth the money.
posted by burnmp3s at 8:47 AM on October 29