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Who really pays for mortgage fraud? Actually, you.
Loan rates are higher in areas where lenders have to cope with a sizable amount of bogus applications, false home appraisals and other scams, experts say. The few extra basis points in rate compensate lenders and loan investors for the added risk they assume by extending credit in problematic areas.
South Florida home buyers take a hit, for instance, for having a large amount of fraud. Freddie Mac even sent a special bulletin to lenders last June warning that "in the Miami area, loans originated during 1997 are defaulting at a rate more than five times the national average, and at more than double the rate of the next highest regional average."
Everyone pays for Miami's vice
In the Miami/Fort Lauderdale market, for example, the average 30-year fixed mortgage rate was 6.971 percent in 1998. In Tampa/St. Petersburg, it was 7.068 percent. Nationally, surveys found an average rate of 6.917 percent. As a result, home buyers in Tampa paid $120 more per year than the national average on a $100,000 fixed-rate, 30-year mortgage.
"All lenders are, of course, in business to make money and they're entitled to a reasonable return on their investment," says Paul F. Hancock, deputy attorney general for South Florida. "If they make loans to people who aren't able to repay the loans, then that's a loss.
"That is eventually recouped in the form of interest rates because the lender has to make a certain profit."
Alan Robbins, a residential lending executive with MetroBank of Miami, who also serves as the vice president of the Mortgage Bankers Association of Florida, says he thinks area lenders may just be getting a bad rap. A Freddie Mac spokesman points that part of the agency's mission is to smooth out regional rate discrepancies. He says the higher rates aren't necessarily a direct result of the fraud problem, he adds, but may be the result of a lack of competition in an area.
"In discussions that I've had with the agencies up to this point, they realize that South Florida is a good place to do business," Robbins says. "That doesn't mean that they or anyone else condones fraud and it's unfortunate that we have a higher level of fraud, but when you take into consideration . . . the amount of business being done down here, the positives are still outweighing the negatives generally."
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