Mortgage fraud?

Darren · #1 07/15/14, 04:22 PM

A neighbor recently got a mortgage to buy and setup a doublewide trailer on their farm. They wanted to save money so they've been making double payments each month. The mortgage allows early payoff. They've been sending in two coupons with the payment. The bank has not applied the extra payment to the principal, as I believe they should, but has been taking the interest shown on the extra coupon and applying very little to the principal based, I guess, on the original amortization schedule.

I've suggested sending in only one coupon.

Anyone know if this is fraud or an simple error on the part of the bank. Is there a federal agency that watch dogs this? The state attorney general seems baffled by this. Usually they're on top of anything that smells like consumer fraud.

Anyone know specific law that applies?

Alice In TX/MO · #2 07/15/14, 04:29 PM

If they sent two coupons, that gives the instruction to make two regular payments. NOT to apply the excess to the principal.

If they wanted to pay extra, they should have personally gone to the bank and supply written instructions with EVERY check.

The people screwed up. Not the bank. There was no error. Just confusion on the part of the people making the payments.

frogmammy · #3 07/15/14, 04:30 PM

I think they SPECIFICALLY have to state on the payment coupon that the $$$ is to be applied to the balance for that to happen.

Mon

TRAILRIDER · #4 07/15/14, 04:33 PM

it doesn't sound like an error on the banks part, but rather an error on the homeowners part. By sending in two payment coupons they are making two separate payments....say Jan and Feb...at one time. What they need to be doing is sending a check with one payment coupon and directions to add the additional sum to "principle only". They could be paying additional principle, additional interest (but why?), additional escrow or just making several payments at once. I know this because it is exactly what I do. I like to pay several months in advance. That's like an emergency fund. You are paid up through next year. But I continue to pay extra on the principle as well every month. It would be a honest assumption if two payment coupons are sent in that the home owner would be wanting to make two payments.

kasilofhome · #5 07/15/14, 04:37 PM

Also it is a state by state statute about IF there is penalty for early payment off of a mortgage. Am have no penalty. Yet others do.

Also sending in extra coupons is the problem. Sending in an extra check with a not with the info is what is wanted along with that info on the memo port of the check.

Also contacting the bank and in writing the confusion of what happened and asking that the reapply the funds in the fashion they want .....hint smile and be pleasant if doing it in person or friendly in the note. Honey vs you crooks could go a long way.

TRAILRIDER · #6 07/15/14, 04:40 PM

I would also like to add that everyone, individuals as well as banks make honest mistakes. I like to keep a handwritten spread sheet showing my ever changing interest payments, principle payments, escrow payments and the remaining principle balance. I also keep my printed receipts from paying the mortgage online along side the spread sheet. If there is a mistake I will find it immediately...not 3 years down the road. And I can know exactly to the penny what I owe : )

CurtisWilliams · #7 07/15/14, 04:44 PM

My mortgage company allows me to prepay multiple monthly payment at the same time. This will relieve me from my monthly obligation for however many months that I prepay.

I can also apply the extra funds directly against the principal money directly against the principal if I so desire.

Prepaying against the principal will lower your total mortgage obligation. But you must still make your monthly payments. Prepaying your monthly mortgage payment will get you a tiny bit ahead as far as your total obligation goes, but will allow you the flexibility to miss payments in the future, as they have already been paid.

For example, I apply an additional $30 monthly to my principal. This does not mean that in the future that I will ever be able to skip a monthly payment. Yet if I pay in an extra monthly mortgage payment, that will give me a months grace period if I need to miss a payment.

Both scenarios have their own individual pro's and con's. I advocate prepaying the principal instead of making advance payments.

For every dollar I prepay, it will save me about two dollars in interest. Not a bad ROI!

MO_cows · #8 07/15/14, 04:44 PM

Any time I make a principal payment, I send a separate payment marked "Principal".

By sending in the two payment coupons, they gave they impression they were making the regular payment early. I don't think you could hang the lender for fraud under those circumstances. But they do need to contact the lender and see if the payments can be re-apportioned to wipe out more principal, and especially to find out how to make sure it doesn't happen again.

The smaller the bank, probably the better response they will get. We have a note with our itty bitty local bank for our son's place. The payment is automatically deducted from an account that son pays into. It is rounded up, with the extra applied to principal. It's working very well, he's going to be paid in full very early. But try to get a bank of any size to do that for you!

mnn2501 · #9 07/15/14, 05:28 PM

They should not have been sending two coupons. It was their mistake, not the banks.

Harry Chickpea · #10 07/15/14, 06:33 PM

However, since they have sent in the extra coupons and are ahead, they can now take a vacation from paying the mortgage until the next coupon due date. That means the money they would pay to the mortgage can be placed instead in an interest bearing account.

There are various ways of playing the paydown game on a mortgage. Always read the contract and make sure the mortgage document allows it. What I used to do was pay three months principal, as shown on the coupons, until the amount was large enough to hurt, then pay two months principal for a while, and finish out with just the regular payment. It dropped the effective interest rate and total interest payout with minimal hassle.

unregistered353870 · #11 07/15/14, 06:59 PM

Instead of taking a vacation from paying, they could get pretty close to the result they were going for by making payments of the regular monthly amount applied to principal only each month until their next monthly payment is due.

This wouldn't help much if they had been doing it for several years, but since the mortgage was recent they can pretty much catch up to what they intended to do in the first place.

Harry Chickpea · #12 07/15/14, 08:54 PM

Yep, as Oggie might suggest, there are lots of ways to skin a cat.

Darren · #13 07/17/14, 10:50 AM

Thanks for the info folks. It is appreciated.

badsanta · #14 07/20/14, 02:41 PM

Every mortgage I ever had required a payment every month. I could pay more but not less. I can't pay months ahead and then take a vacation and not pay for several months even if I had paid ahead. I know people that have refinanced to go from a 30 year to a 20 year. Why? just pay alittle extra each month to make it as short term as you want. If things get tight just go back to regular payments. They have to except as much as you want to send but still have to pay the minimum each month every month. Does not matter how many payment stubbs you have left over if you pay early.
The easiest way to figure this out is to call the number on the payment book and ask customer service

Harry Chickpea · #15 07/20/14, 04:26 PM

"Every mortgage I ever had required a payment every month. I could pay more but not less."

Maybe so, however if the mortgage company doesn't apply the excess to principal in such cases, it would be fraud.

badsanta · #16 07/20/14, 06:44 PM

Of course if thats what happened.

jumpstartjack · #17 07/20/14, 08:02 PM

A lot of consumer debt interest is based on the "rule of 78s" which screws you on prepayment but is legal. Affectionately known as a stupid tax.

**Shrek** · #18 07/20/14, 08:44 PM

When I was making double payments on my mortgage I made the check out to the amount of two payments , memo notated it as the current payment number due & remainder to principle and took my coupon book in and the teller removed the current coupon, stamped the receipt tab and after checking the system made a notation in the back of my current coupon book of the principle early amount applied to the back end. I paid out a 15 year mortgage in 6 and a half years that way and saved a bunch of interest while building my credit and buying my place.

**clovis** · #19 07/20/14, 11:11 PM

Quote:

Originally Posted by badsanta

The easiest way to figure this out is to call the number on the payment book and ask customer service

This is outstanding advice, but in my experience, I have found it extremely difficult to find anyone employed at a bank that understands or can explain anything about a loan, especially if it is about prepayment.

I am not kidding when I say this: I have talked to loan originators, as well as branch managers, who cannot explain the basics of paying off a loan early!

I have had two loan originators try to talk me out of paying off the loan altogether, and both of them tried to loan me more money.

I had one branch manager, who has been employed by the bank for decades, try to tell me that it was cheaper to keep the mortgage than it was to pay it off. When I asked her to explain what she meant, she got dead quiet, stuttered for a few minutes, and then said "Well, you can do what you want with your money." She then implied that I was an idiot for trying to be debt free.

When I first was married, we were trying to pay off her car note, which happened to have a higher interest rate than normal. I called a bank to see if they would loan the balance against the car, which I think was about 28 months, and the branch manager tried to talk us into borrowing more money against the car! I think we owed about $6,500 on it, and she tried to get us to borrow $13,000 for 84 months...I know, I know...it is too weird to believe!!!

About 2 years later, we had that car paid off for about two months, and it got totaled. The insurance company was insistent that absolutely no one had a car that new that didn't have some type of lien on it. They could not believe that we owned that car outright, free and clear!!!! I finally told them I would fax a copy of the title to them so they could see for themselves!!!

ChristieAcres · #20 07/21/14, 02:53 AM

Quote:

Originally Posted by Shrek

When I was making double payments on my mortgage I made the check out to the amount of two payments , memo notated it as the current payment number due & remainder to principle and took my coupon book in and the teller removed the current coupon, stamped the receipt tab and after checking the system made a notation in the back of my current coupon book of the principle early amount applied to the back end. I paid out a 15 year mortgage in 6 and a half years that way and saved a bunch of interest while building my credit and buying my place.

Great job! You must be

I was a Loan Originator for 7 years and I told every single Borrower to pay extra on their mortgage. If you send in a coupon and pay more than the mortgage, it is automatically applied to Principal. The problem is when someone sends in two coupons, different months, then expects the extra payment to be applied to Principal. Yes, they really did mess up. As for what Shrek did? That was the BEST way to insure there would be no mixup! My best friend and her DH paid "double" payments and their home was paid off very early.

Here is what I told my Borrowers: You can shave years off your mortgage, simply by making principal payments on top of your monthly payments. Be sure and confirm your Principal is being credited. You can have your payment history printed off at any time by your Lender.

My Loan Originator License is currently inactive. I am considering renewing it, as I am earning the income to pay for our home (DH is building it)