Too-good-to-be-true offers leave borrowers in a bind

Second of three parts

The promise of easy money comes in an official-looking envelope marked, “Important Financial Information Enclosed.” Need $2.5 million at 1 percent to 2 percent to buy or refinance a home? No problem.

Borrowers put no money down and pay just interest. A good credit rating is not a requirement. Bankruptcy judgments, debt charge-offs or tax liens don’t matter, and “all difficult credit scenarios are okay,” the lender says.

The home-financing offers come from an army of mortgage brokers estimated at 250,000 nationwide, many operating outside the reach of banking regulators. They have become the principal source of home financing in the United States.

In years past, banks and savings and loans provided most mortgages, but their share of the $2.8 trillion market dwindled to less than half in recent years, according to Harvard University’s Joint Center for Housing Studies.

As the role of banks has declined, the share of unconventional mortgages with easy and risky lending terms has exploded — and now account for more than $650 billion last year, up from $56 billion in 2001, according to the Federal Reserve. Most of that growth occurred since 2003, when the total was $118 billion.

“The mortgage industry of today bears little relationship to the mortgage industry of even the 1990s,” said William C. Apgar of the Harvard center.

The number of unscrupulous brokers offering “junk mortgages” has multiplied with the housing boom and advent of Internet financing in the past five years, said David Levine of Mortgage Loan Request, a mortgage information service.

Their advertisements “are designed to hit consumers where they are most susceptible, their wallet.”

They are often successful, because many consumers never see or understand the fine print — often on the back of the flier — that explains what a bad deal the mortgages can be, he said.

“The sleight of hand is that the low rate advertised is actually adjustable, and it can increase in as little as 30 days’ time. You may be paying less every month, but your interest is not being paid up and your loan balance continues to accumulate at an alarming rate,” he said.

“Homeowners who think that they may be saving $200 to $300 a month on their payments are actually falling behind by that very same amount” because payment of full principal and interest is being postponed to a later day of reckoning, he said.

No-risk sales

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