Banks and regulators say mortgage fraud has increased significantly as interest rates rose to multi-decade highs.
Since borrowing costs started rising two years ago, more people in the US and UK have lost money to lenders who promise below-market interest rates in exchange for upfront fees, only to disappear as deadlines approach. loan.
Lloyds Bank said the number of so-called advance payment frauds reported by customers rose by 83% in 2022, compared with a 19% increase last year. There were nearly 26,000 in the U.S., according to Federal Trade Commission figures. Last year, a case of advance loan abuse was reported, costing victims nearly $75 million. That was down from a peak of $99 million in 2022, but still significantly more than victims lost to these rackets before interest rates started rising two years ago.
France's Prudential Supervision and Insolvency Authority has also warned of an increase in credit scams offering loans at very low interest rates.
“There's quite a bit of data showing that advance payment fraud is on the rise,” said Jason Zirkle, director of training for the Association of Certified Fraud Examiners.
Zirkle said it is illegal in the U.S. to collect application fees if you are not a licensed lender, and most do not constitute advance payment fraud.
“In some ways it's surprising that there's so little they have to do to get people to send money,” he added.
When Angela, a nurse in Wisconsin, went looking for a new mortgage last spring, the timing couldn't have been better. Her mortgage rate was 7.5%, the highest in 10 years, and Angela, who asked the Financial Times not to use her last name, was paying 3.25% in interest on the loan for her home, which she was preparing. It was more than double the percentage. sell.
She said the loan is from BetterMed, a Toronto-based financial company that provides services for medical professionals and offers loans at zero per cent interest.
BetterMed required an upfront application fee of $15,500. But Angela said her BetterMed loan officer told her the fee would be applied to her mortgage costs if she was approved, which she claimed applies to almost all applications.
Angela said, “I should have known more about wire transfers.''
This year, she was told for several months that her loan was being processed, before receiving a notice saying her application had been rejected without explanation. She has since logged her complaint with the Better Business Bureau and contacted her attorney.
“When I contacted him, they already knew my credit score, so it seemed legitimate,” Angela said.
“I'm very disappointed that this happened because it seemed like a really great deal.”
BetterMed could not be reached for comment. The company's phone number was recently removed from its website and is no longer in use. The company did not respond to multiple emails and letters from the FT.
BetterMed's website lists two headquarters, one in Toronto and one near Times Square in New York. However, security guards at both locations said there was no company by that name in those buildings.
In Canada and the United States, lenders and mortgage brokers must obtain a license from their local financial authority. However, BetterMed is not listed as a licensed lender or mortgage broker in Ontario. The New York Department of Financial Services also does not register him for BetterMed.
BetterMed's website states that the company offers “the world's lowest interest rates: 0% for 30 years” and a “100% approval program for selected applicants.” The application fee can be up to $10,500, but “every penny” of the application fee will be “deducted from the total amount owed.”
However, BetterMed states in the “Terms of Use” section of its website that it is not a lender and “does not provide any express or implied guarantee that a loan will be approved.” The refund policy states “No refunds”.
BetterMed touts many success stories, including one from Spiro K, who gave the company five stars in a February post on the self-publishing site Medium. “Everything was documented and we were given a 30-year repayment term. The savings were amazing,” Spiro writes. The company's website also features three videos of him by seemingly satisfied customers.
Elsewhere, BetterMed reviews are less positive. There are complaints posted on Reddit about the company dating back three years, many of which claim they paid more than $1,000 to the company and never received a loan.
The Ontario Better Business Bureau gave BetterMed an “F” rating, saying it received 12 complaints about the company over a three-year period, 10 of which were never resolved.
Matthew Graham, mortgage rates expert at industry website Mortgage News Daily, said some lenders offer lower-than-average interest rates, often with high upfront costs. “It is literally impossible for a 0% mortgage to exist without some very important conditions,” he said. attached”.
Graham said the language BetterMed uses to describe the loan raises red flags. “The site also ignores a number of logical questions that a prudent borrower must answer before calling time,” Graham says. “At first glance, it's very suspicious.”
Louise Baxter, consumer protection expert and founder of the UK National Trading Standards Fraud Team, said rising interest rates and other economic factors were playing into the hands of fraudsters at the moment.
“People are not vulnerable. It's the circumstances and the market that make them vulnerable,” Baxter said. “When it comes to mortgages and loans, the impact is even stronger in that area because of the cost of living crisis and high interest rates.”
