Mortgage fraud through bait and switch

Sam

Bait and switch is a kind of fraud in which the mortgage lender lures consumers by advertising loans at a low interest rate so that customers can submit their applications for the low rate mortgage. Afterwards, the lender reveals that the particular loan offer is not available and he offers a substitute loan program that has comparatively higher rate.

Most lenders intend to convince consumers to accept the substitute loan program so that they can avoid the disappointment of not getting the bait, or as a way to recover the sunk costs that the consumer has spent to obtain the bait. However, the best way to avoid such situation is to check whether the lender provides the rate in writing at the time of loan application.

For example: Suppose your lender has quoted a 5% interest rate when you applied for a mortgage. But when your loan is processed, he informs you that the current interest rate applied on your mortgage will be higher than the advertised rate, say for instance, 8%. This is known as bait and switch.

Bait and switch is committed by mortgage lenders and other creditors as well as sellers to lure customers for lower interest rates and prices. Later on, these customers have to purchase substitute goods as the advertised good is not offered by the seller.

Lenders and sellers often use advertising practices like the use of loss leaders or the use of sales techniques to keep customers away from low-profit loan programs or low-profit goods. These practices do not come under the bait and switch mechanism as long as it is possible to accept the loan package or purchase the original item.

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