AARP The Magazine - January/February 2010

• HOW TO PROTECT YOURSELF NOW You can eliminate the risk of con artists’ opening accounts in your name by placing a security freeze on your credit reports. That’ll stop any new credit from being established in your name. The service is available nationwide from the three major credit bureaus— Equifax, Experian, and TransUnion. Depending on the state, you’ll typically pay $5 to $20 for each freeze—and for each thaw when you want to apply for a loan, which can take several days. Initial charges are often waived if you can show you’ve been a victim of identity theft. But don’t wait for that.

Put the mortgage broker on notice

BACK IN 2000, AT AGE 57, Willie Howard at long last became a homeowner. He bought a tiny house—963 square feet— in Washington, D.C., for about $108,000. A construction worker who never learned to read, Howard proved an easy touch for refinancing offers as the housing bubble inflated. By May 2005, after refinancing, he owed $137,000 on the property. By October 2006, after four more refinancings, Howard’s loan balance had ballooned to $238,500. Half the increased debt came from $51,000 in points, fees, prepay-ment penalties, and negative amortization.

The refinancings, Howard later claimed in a civil suit, began with telephone calls from a mortgage broker promising him a lower monthly payment or a certain fixed interest rate or both. Not able to read documents himself, Howard said, he took the broker’s word on what he was getting.

“The broker was just looking to maximize his money. One
way to do that was to flip Mr. Howard into loan after loan, of-
ten misrepresenting the terms,” argued Eric Halperin of the
Center for Responsible Lending, which joined with AARP
Foundation litigators to sue Howard’s brokers and lenders on
his behalf. “The problem with the system is that the broker
had no obligation to act in Mr. Howard’s best interest.”
That’s right: no obligation. While Howard’s case ended in
a settlement, and he remains in his home today, mortgage
brokers in most states still have no responsibility to act in
the best interest of their clients—what’s known as a fidu-
ciary duty. They get paid up front, raking in 2 to 3 percent
of the home’s purchase price. According to a study by the
FBI, more than 63,000 mortgage fraud reports were filed
in 2008, and the pace of new reports almost doubled in the
first four months of 2009. • HOW TO PROTECT YOURSELF NOW While Congress and the
Federal Reserve Board are considering eliminating some of
the incentives brokers have to gouge borrowers, your best
move is to hire a real-estate attorney to represent you in ar-
ranging the loan and purchase—a $500 to $2,000 expense.
That’s a good investment; foreclosure rates in the nine
states requiring attorneys for real-estate transactions have
been running at about one-fifth the national average.

Beware the sins of the commissioned

IN 1997, AF TER 30 YEARS at Pacific Bell, Vikki Vargas of Tracy, California, was on her way to a comfortable retirement. Then a brain aneurysm changed (CONTINUED ON PAGE 64)

WHERE TO TURN FOR ADVICE AND HELP ON…

• Identity Theft Resource Center No-cost victim assistance: 888-400-5530; idtheftcenter.org

• Financial Privacy Now
Consumers Union’s
website on security
freezes, data breaches,
and protecting your
Social Security number:
financialprivacynow.org
IDENTITY THEFT
MORTGAGE SCAMS