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Online Mortgage Deals May Have Shaky Foundations

By Robertson Barrett

Ann Starnes of El Paso, Texas, wasn’t in the market for a mortgage. But in late May, she found a tempting offer from a company called Lendbridge in her e-mail queue, and she started giving it some serious thought.

“Ever since we unveiled our new lending program, every property owner in town is jumping on board,” read the message. “Bad payment history is OK. With our new plan, we view you as more than just a FICO score”– a reference to the rating many financial institutions use in deciding whether to make loans to consumers.

The mortgage rates that Lendbridge advertised were spectacular – as low as 3.46 percent. All Starnes had to do to apply was visit a Web site and type in answers to a few questions about her home and her desired loan. Then, Lendbridge promised, within 48 hours, “We’ll search our network to match you with the best lender in your area based on your credit situation and financial needs.”

But before filling out the form, Starnes wisely tried to confirm some basic company information on the Lendbridge site, and it didn’t check out. According to MapQuest.com, Lendbridge’s Austin address didn’t exist. And its 800 number yielded a generic answering machine message. “I would be suspicious about any site that wants your information, and yet is giving you incorrect information,” she says.

A Consumer Reports WebWatch review of Lendbridge found more reasons to be wary. The Web address in the e-mail Starnes received was not www.lendbridge.com – a dead url that doesn’t lead to any site – but a more complicated link (www.crinumlily.us/lendbridgemedium_rt). That address and www.lendbridge.com are both registered to “Steve Goudreault” of “American Loan Rate” in Reno, Nev. Phone messages left at a number listed with the Internet registration were not returned.

Tell Us About Yourself …

Online banking experts say unsolicited e-mail offers like the one Starnes received are exploiting the popularity of major online mortgage sites such as LendingTree and E-Loan, which offer would-be borrowers the chance to comparison-shop for low rates among many lending institutions.

” These are a lot like traditional ‘phishing’ scams that use similar names to trick the recipient into giving up personal information, for fraudulent purposes,” says Mary Beth Guard, executive editor of BankersOnline.com, a discussion site that offers consumers advice from bankers. “They are often selling your information to lenders, and it could end up anywhere.”

That’s exactly what happened in December, when the U.S. Federal Trade Commission (FTC) halted a scam run by 30 Minute Mortgage Inc., an Internet operation that e-mailed spam offers for “3.95% 30 Year Mortgages”– despite the fact that 30 Minute Mortgage was not a lending institution at all. But the FTC says the outfit did manage to get thousands of consumers to fill out applications listing their Social Security numbers, income and assets, then secretly sold the information to third parties.

“We’re very concerned about consumers providing their personal information online and then discovering that it’s being used for a different purpose,” says Amanda Quester of the FTC’s Bureau of Consumer Protection, which has stepped up investigations of mortgage fraud online. (This month alone, the FTC charged PWR Processing, a group of Colorado mortgage brokers, and Chase Financial Funding, a California broker, with advertising illegal or nonexistent mortgage deals via the Internet.)

But even if ill-gotten information ends up in the hands of legitimate brokers, there can still be serious consequences for the consumer. In the worst cases, say critics, eager loan officers run credit inquiries before they contact consumers – a burst of activity that usually looks suspicious to credit bureaus and may cause them to lower credit scores.

William Tygart, an Allyn, Wash., mortgage broker, says he encountered just such a nightmare scenario last fall, when a borrower forfeited a high FICO score of 710 after venturing online: “After he filled out the applications, he was contacted by numerous mortgage brokers that had offers for him. The offers stopped coming, and the borrower found out that he had dropped to a 520 credit score because of 103 inquiries within two months. Now this gentleman cannot get the rate that he deserves.”

Fear of multiple credit checks has also dogged established online loan sites like E-Loan and LendingTree, whose large roster of lenders is no less credit-history conscious. But both companies allow consumers to defer credit checks until they decide to move ahead with a particular lender, allowing them to limit the overall number of checks.

“The best thing consumers can do is keep track of how many people you are working with,” says Mindy Neubauer, a LendingTree spokeswoman.

Finding an Online Lender

Because the Internet offers the advantage of comparison-shopping to find the lowest mortgage, some advocates recommend tempering the risks with a dose of offline detective work.

“The two mortgages I’ve gotten, I applied for and was approved for online,” says Guard. “But you have to exercise caution and be very sure of what you’re getting into.”

To do that, Guard recommends following these steps:

  • Before shopping for mortgages online, find out what the prevailing mortgage rates are in your area by checking local newspapers and established industry sites such as BankRate.com. “There is a lot of variation around the country, and banks may have raised or lowered rates in your area,” Guard says.
  • When shopping for mortgages online, ask friends what lending institutions they used to buy real estate and whether the firms operate online.
  • Search engines can be helpful in discovering whether a particular online lender has a negative track record. In addition to typing the lender’s name into major search engines, check the FTC’s Web site (www.ftc.gov) to make sure there have been no federal proceedings or disciplinary actions against it. If the institution is federally insured, check the FDIC’s Web site (www.fdic.gov). If it’s a credit union, check the National Credit Union Administration site (www.NCUA.gov).

Sidebar: Useful Tips and Resources

The FTC encourages consumers to make sure their transactions — online and off — are secure and that their personal information is protected. Tips to help consumers manage their personal information wisely and to help minimize its misuse are provided at

http://www.consumer.ftc.gov/articles/0272-how-keep-your-personal-information-secure

The FTC recommends consumers:

  • Never respond to a solicitation directly unless you have an established relationship;
  • Never click on a link from an unsolicited email offer. If the offer is from a known company, always go through an established “front door” (e.g., the company’s known Web address or telephone number).

For more information:

http://www.consumer.ftc.gov/topics/privacy-identity

If you’re shopping for a mortgage, consult this consumer tip sheet, also from the FTC: http://www.consumer.ftc.gov/articles/0189-shopping-mortgage