A few days ago, Michelle Singletary of the Washington Post wrote an op-ed piece entitled “A 400 Percent Return in 7 Days? Riiiight.” After briefly discussing the difference between pyramid promotions – which are illegal – and multilevel marketing schemes – which are not, Singletary moves on to describe a suspicious meeting she recently sat in on.

The speaker was a representative of Financial Independence Group, a multilevel marketing scheme that preys on homeowners. Basically, you have to pay to join, but you have the potential to earn 400 percent of your initial membership fee if you can convince five more people to join…and if two of those five refinance their homes through Financial Independence.

Of course, Singletary did some snooping around, and found out some things that seemed rather suspicious. For instance:

• Financial Independence claims not to be a mortgage broker, yet they send out applications requiring employment history and other information needed to process a loan.
• Financial Independence’s application also requires a $425 application fee!
• Members are encouraged to dunk their home equity into risky investments.
• Members can also earn “by giving wealth-building presentations.” (Read: by deluding other homeowners.)
• In order to find out more about membership, you have to become a member.
• The company has supposedly been in business for 10 years, yet Singletary couldn’t find any record of the company earlier than 2006.
• Although Financial Independence’s purpose is supposedly to provide financial advice to members, they refused to give Singletary the names and credentials of their financial advisors.
• In fact, every time Singletary asked for more specific information about the company, her questions were sidestepped or outright refused.

Reading this article, it is obvious how important it is for homebuyers and homeowners to know what to look for in a mortgage broker. As with any business that has the potential for lots of money, scams abound, and it is far too easy to get taken advantage of.

Here are a few ways to protect yourself from dishonest mortgage schemes and services:

• Always make sure the person you are giving your information to is licensed, whether they are a mortgage broker or a loan originator.
• Always check all the details of the deal you are being offered. If the mortgage broker sidesteps your question or redirects your attention to how happy the new loan is going to make you, get out fast!
• Avoid anything with an abnormally high price tag, such as home-buying seminars, membership applications, and financial “advice.”
• Always check brokers or other businesses out with the Better Business Bureau before committing to anything. Often even a simple Google search can dig up dirt on a shady company.

Whether you are buying a new home or refinancing an old one, doing your homework can help you make sure that you never get “taken” by an unscrupulous mortgage broker!

Thank you to Logan Chierotti, from www.ColoradoHomeHelper.com, for contributing this blog post.

The Wall Street Journal recently published a short, but rather pertinent, piece on requesting credit reports and their impact on credit scores.

Question: If I request a copy of my credit report will that hurt my credit rating if I want to apply for a mortgage? One bank said I should not ask for multiple credit reports during the year because that would show up as multiple hits against my credit report and could lower my credit rating.

Answer: Requesting a copy of your own credit report is generally considered a “soft” inquiry, which shouldn’t hurt your credit score. Other types of soft inquiries include ones that are initiated by lenders who want to make you a preapproved offer, or by prospective employers or insurers who want to check your credit report.  “Hard” inquiries, where lenders pull your credit report in response to your application for credit, may contribute to a lower credit score depending on what else is in your credit report.  Fair Isaac, the maker of the FICO score, notes that its scores ignore all mortgage and auto-loan inquiries made in a rolling 30-day period prior to scoring and typically counts mortgage and car-loan inquires older than 30 days as one inquiry when they are made within a 45-day period.

At the end of 2006, with the passing of its omnibus tax bill, Congress made private mortgage insurance for middle-income home buyers tax deductible in 2007. Private mortgage insurance, or PMI, is required when a homebuyer puts down less than 20% and protects the lender in the event of foreclosure.

In recent years, home buyers have been using piggyback loans to avoid having to pay PMI. A piggyback loan is when the borrower uses a first loan for 80% of the value of the home, a second mortgage (typically an adjustable rate loan) for up to 15% of the value of the home with a five percent down payment. Because neither loan is for more than 80% of the home’s value, PMI is not necessary. Now, with PMI being tax deductible, the need for a piggyback loan is significantly reduced for middle-income borrowers.

However, like most changes to the federal tax law, there are some caveats:

1. The tax deduction only applies to mortgages that are closed or refinanced in 2007.
2. The full deduction is limited to homeowners with an adjusted gross income of $100,000 or less. The deduction is still available to those who make up to $110,000, but at a reduced rate. No deduction is available for those who earn over $110,000
3. Congress has only made this deduction available for the 2007 tax year. While it is expected to be extended, it is not guaranteed, and;
4. Investors are barred and home owners also need to itemize their returns to be eligible.

Mortgage rates have fallen on news of the housing market slowdown – 30-year fixed-rate mortgage declined to 6.22 percent from 6.30 percent, which is on par with rates a year ago.

NEW YORK (CNNMoney.com) — Mortgage rates fell in the past week as lenders showed concern for the effect the slowing housing market would have on the economy, according to a survey released Thursday.

No doubt about it, interest rates have been steadily moving up from the once lows that we saw not too long ago. Given the situation, many home owners are faced with increasing loan payments. Look to the following four tips and tricks to aid you in this time of rising interest rates.

1) Think both realistically and creatively on the use of home-equity lines of credit. Typically, borrowers can save interest on a month-to-month basis by moving balances from a home-equity line of credit to, a credit card for instance, oftentimes finding zero percent, or very low, interest rates. A borrower can make this work, however, a borrower must be attentive to detail (i.e. the small print), and moving money around at the proper times given the situation.

2) Consider a fixed-rate second mortgage to replace a large home-equity line of credit. Typically, borrowers can find a lower rate by ferreting out the details on this one., and perhaps remove the possibility that a rate hike will increase your costs, and set a fixed term so you fence in just how long you will be paying for the home improvements, or the condo development project that you took on.

3) Be on the lookout for mortgage brokers who will entice you to come back by offering home-equity credit lines with interest rates of prime plus zero or even below prime. If you do your research, this might allow you to get over that hump.

4) If you have an option loan, consider the idea of using the option to make interest only payments, while you go out and look for a better (longer term or fixed) rate. You will not build equity while doing this, perhaps one of the main reasons for buying a condo, but you will not hurt your credit by doing this.