Bait and Switch Scheme
The “bait and switch” consists of promising loan terms that are good enough to get the borrower committed (”off the street” in industry parlance) and then, after they put their time and energy in to the process, delivering significantly different terms on their loan documents at the signing table.
The hope being that the customer is too exasperated or desperate to put up much of a fight, and they accept the new terms. This can take the form of any of the following (and more based on loan officers’ personal propensity or inclination):
- A low rate that is suddenly higher
- Loan type is suddenly different (i.e. from a fixed rate to an ARM)
- Loan fees are suddenly significantly higher, much higher
- Prepayment penalties suddenly arise
- Significantly less cash returned to the borrower than anticipated
- Inflated appraisal
Lenders Pushing Inflated Appraisals
The problem stems from the way the industry calculates property values. Loan originators, many paid on commission, sometimes pressure appraisers to fudge their numbers to make mortgages work, experts say. That means people who don't have a ballpark figure in mind before they borrow -- or who don't verify numbers that sound too good to be true -- could be setting themselves up for financial ruin.
According to hundreds of homeowners I have talked to, it is common practice for appraisal firms to colluded with mortgage brokers to artificially inflate the value of residential properties so that owners were able to qualify for the mortgage.
The resulting conspiracy is partly to blame for the record breaking nationwide foreclosures, sinking home prices and what many are calling “a housing meltdown.”