December 4, 2006
Predators offer deals that are too good to be true, appealing to the
hidden belief of victims that somewhere out there is a tooth fairy who
will solve their financial problems. They also work fast because they
want to get the deal done before the victim begins to ask questions they
don’t want to have to answer.
I seldom publish long letters in their entirety, but I’m making an
exception in this case. The letter below is so wonderfully descriptive
of the gullible mindset of a victim waiting to be plucked, and the modus
operandi of a predator poised to do the plucking, that it is worth the
space.
"I received a letter that told me I may qualify for a 1.25% home loan. I
was skeptical, but I called the number on the letter anyway. The lady
who answered said it was a special program offered by their bank that
allowed qualified people to obtain a home loan with only 1.25% interest.
She said that she could run my info through their data base to see if I
qualified for a processing fee of $49.99. I agreed and gave her my
credit card information. Later that night, a man called from the same
bank and told me that I did qualify and he asked me if I wanted to go
through with it. He said that he would kick back $800 of the bankers fee
to me if I made my decision at that time so that he could meet his quota
for the day. I agreed and they called me the next day at work to
schedule a home appraisal. Later that day I got a call from my homeowner
insurance agency asking if it was okay to change the beneficiary on my
plan to this new mortgage company. I told them that I hadn’t even signed
anything yet and that shouldn’t be necessary yet, but she said that they
needed to see that I had changed my insurance before they could continue
and that changing the beneficiary back to my original lender was a easy
as calling her up and telling her to change them back. I told her she
could change what she needed to. Now, I am going down to the lender’s
office to bring them some information (the usual pay stubs, bank
statements and I.D.) but I am still very skeptical and I’m not sure what
to think of this. Is a 1.25% loan even possible? What should I look out
for?
Please respond ASAP because I’m right in the middle of all this and
these people seem to work fast."
This letter illustrates three major characteristics of predatory
lenders. First, they appeal to the hidden belief of victims that
somewhere out there is a tooth fairy who will solve their financial
problems. Despite the expressed skepticism of the letter writer, he
wants to believe there is a 1.25% mortgage for him. He believes enough
to pay $49.99, provide his personal financial information including a
credit card number, and change the beneficiary of his homeowner’s
insurance policy.
Second, predators exploit the gullibility of those who want to believe
the tooth fairy has found them. "He said that he would kick back $800 of
the bankers fee to me if I made my decision at that time so that he
could meet his quota for the day." With no information provided on how
large the "banker fees" were before or after the discount, this is an
absolutely meaningless offer, yet the letter writer accepted it without
challenge.
A third characteristic of predators is that they work fast. The
fictitious $800 discount was conditional on the victim making an
immediate decision "so that he could meet his quota for the day". The
last time I heard that line was when I was shopping for a carpet in a
middle-east bazaar.
Predators work fast because they want to get the deal done before the
victim begins to ask questions they don’t want to have to answer –
questions that can give the game away. The question they least want to
hear is "How long does the 1.25% rate last?" The truthful answer – it
lasts only one month -- leads inevitably to the question of what happens
to the rate in the second and later months? And that in turn may cause
the victim to wonder whether the new mortgage is really better than the
one he has.
[Of course, if there were no prey, there would be no predators. For a
discussion of the characteristics of victims, see
Avoiding Mortgage Predators. The
single most important rule for avoiding predators is to select your loan
provider rather than allowing the loan provider to select you.]
My response to this potential victim was to point out that the 1.25%
rate lasted for just one month, that in month 2 the rate would jump to
the rate index plus a margin, which would almost certainly be higher
than the rate he is now paying.
Postscript: Curious as to the aftermath, I later wrote the letter-writer
again and received this reply.
"I took your advice, and politely declined their offer. They were trying
to cover things up about the loan and when they figured out I was on to
them they put even more pressure on me. I really don't need to
refinance, but the bait was tempting."