The jump in interest rates to the highest levels in decades has led to a big increase in mortgage scams, according to banks and regulators.
Since the cost of borrowing began rising two years ago, a growing number of people in the US and the UK have lost money to vendors who promise below-market rates in return for an upfront fee, only to disappear when it comes time to close the loan.
Lloyds Bank says the number of so-called advance-fee scams reported by their clients rose by 19 per cent last year, after climbing 83 per cent in 2022. In the US, according to numbers from the Federal Trade Commission, there were nearly 26,000 reported cases of abuse of advance-fee loans last year, costing victims nearly $75mn. That was down from a 2022 peak of $99mn, but still significantly more than what victims had lost to such rackets before interest rates started rising two years ago.
The French Prudential Supervision and Resolution Authority has also warned of an increase in credit scams offering very low interest rate on loans.
“There’s quite a lot of data showing that advance fee fraud is going up,” said Jason Zirkle, training director at the Association of Certified Fraud Examiners.
Zirkle said it is illegal in the US to take an application fee if you are not a licensed lender, which most are not in advance-fee scams.
“It’s kind of amazing how little they have to do to get people to send them their money,” he added.
When Angela, a nurse who lives in Wisconsin, went looking for a new mortgage last spring her timing could not have been worse. Mortgage rates were at 7.5 per cent, a 10-year high and more than double the 3.25 per cent interest Angela, who requested that the Financial Times not use her last name, was paying on the loan on her home, which she was getting ready to sell.
She found what looked to be a good deal: a loan from BetterMed, a Toronto-based financial company that said it catered to medical professionals and offered loans with zero per cent interest rates.
BetterMed required a $15,500 upfront application fee. But Angela said a BetterMed loan officer told her that fee would be applied to her mortgage costs once she was approved, which he claimed was the case for nearly all applications.
“I should have known better than to wire the money,” said Angela.
For months she was told the loan was being processed until a notice arrived this year informing her that her application had been denied, without explanation. She has since logged complaints with the Better Business Bureau and contacted a lawyer.
“They already knew my credit score when I contacted him, so it seemed legitimate,” said Angela.
“Very frustrating that this happened, because it seemed like a really great deal.”
BetterMed could not be reached for comment. The company’s phone number, which was recently removed from its website, is no longer active. The company did not return multiple emails and letters from the FT.
BetterMed’s website lists two corporate locations, a headquarters in Toronto and another in New York, near Times Square. But security guards at both locations said there was no company with that name in those buildings.
In Canada and the US, lenders and mortgage brokers are required to be licensed with local financial authorities. But BetterMed is not on a list of licensed lenders or mortgage brokers in the province of Ontario. The New York Department of Financial Services also has no registration for BetterMed.
BetterMed’s website says the company offers “the world’s lowest interest rate: 0% for 30 years”, as well as a “100% approval program for select applicants”. It says application fees can run as high as $10,500, but that “every cent” of the application fee is “taken off the total amount you pay back”.
But under the “terms of service” section of its website, BetterMed states that the company is not a lender and that it “provides no express or implied guarantee that you will be approved for a loan”. Its refund policy states: “No Refunds.”
In a February post on self-publishing site Medium, BetterMed touts its many success stories, including one from Spiro K, who gives the company five stars. “Everything was documented and I got 30 years to pay it back. The savings were amazing,” writes Spiro. The company’s website also has three videos from seemingly satisfied customers.
Elsewhere, the reviews of BetterMed are less positive. On Reddit there are complaints about the company going back three years, many of which claim they paid the company $1,000 or more and never got a loan.
The Better Business Bureau of Ontario gives BetterMed an “F” rating, saying it has received 12 complaints about the company in three years, 10 of which were never resolved.
Matthew Graham, a mortgage rates expert at industry website Mortgage News Daily, said while some lenders do offer lower than average rates, often in combination with some high upfront costs, “it’s literally impossible for a 0% mortgage to exist without some extremely important strings attached”.
Graham said the language BetterMed uses to describe its loans raises red flags. “The site also ignores numerous, logical questions that would need to be answered before a savvy borrower should give them the time of day,” said Graham. “Very suspicious at first glance.”
Louise Baxter, a consumer protection expert and founder of the UK’s National Trading Standards Scams Team, said higher interest rates and other economic factors at the moment played into the hands of scammers.
“People aren’t vulnerable. It’s the situation or the marketplace that makes them vulnerable,” said Baxter. “With mortgages and loans there is increased susceptibility in that area because of the cost of living crisis, high interest rates and all these things.”
Read the full article here
