Grateful a loan broker was able to surprisingly help you get a loan when no one else was? You could be unknowingly participating in fraud.

Loan brokers originate, depending on the lender type, any where from 40% to even as high as 95% of a lender's sales in Singapore. In the US, they originate 65% of all home loans according to some surveys and is an industry that employs more than 400,000 people.

Since a huge bulk of their sales come from them, apart from the lenders' salesforce and websites, you must think lenders must love them right? If you are a business owner, surely you love a bunch of people who are constantly referring sales to you.

But it is more of a love-hate relationship for banks and financial institutes because apart from the high cost of handling the fragmented industry of varying professional standards and training - they are also the single highest source of fraud.

Example: https://www.theguardian.com/australia-news/2018/mar/16/banking-royal-commission-hears-broker-viewed-westpac-loans-as-easier-to-get

You must be wondering right now why should you be concerned?

Sounds like it is the financial institutions' problem and not yours, right? Apart from the possible issues that they can bring to you, which we covered in an earlier article, you could be unknowingly participating in fraud even if they are "on your side".

Apart from modifying your financial documents to make you appear more financially sound or look like you have a better credit profile, a more common tactic they use is double borrowing. It refers to, your profile being determined to be able to borrow $1,000,000. But you went to borrow it 8 times from 8 different lenders and borrowed $8,000,000 instead.

A couple of years ago, a Singapore company owner did exactly that and escaped to Thailand. If you google for it, you should be able to find more of such incidents. While it was not stated in the report if the matter was orchestrated by himself or via brokers, and even if you have no intention of committing fraud, you might be unknowingly committing fraud.

As loan brokers are typically paid on a success basis and a certain percentage of fees either from you or the lender or both, they have the incentive to get you the biggest loan amount you can, even if you don't qualify or need it—they may then introduce you to multiple lenders instead when no single lender deems you eligible to borrow the amount you need.

Sounds like crowdfunding? Nope, sounds like fraud. 

This is one of the reasons why lenders may ask for your banking statements: to try to identify if you have received loans from other lenders, especially for loan types and lenders where there isn't a centralized platform to record and "warn" other lenders, as when you are over-extended, your ability to repay back any of the lenders will be lower. If your broker is trying to squeeze you into meeting many lenders in a single day to sign the loan agreement, it might be because they are trying to get the loan agreement signed and the loans disbursed before the other lenders have a chance to see it reflected in your bank statements.

Wait, that's he or she, not my fault, you might say. Well, let us show you some of the clauses that you may find on a loan agreement where you will be the one signing, not them :

The Borrower undertakes that until such time as the Loan, Interest, and any sum of money that is due and payable by the Borrower to the Lender under this Agreement are paid in full to the Lender, the Borrower shall not without the prior written consent of the Lender: 

(i)    dispose or attempt to dispose of any asset other than in the ordinary course of business;

(ii)    allow any pledge, lien, charge, or other encumbrance to be created on its assets or business; and

(iii)    obtain any loans, credit facilities or any facility that would increase its indebtedness. 
 

Different lenders may word their agreement differently. But when you signed an agreement that you committed you are not overly indebted - especially in a situation where you are defaulting or late on your loan repayment, do you think a lender would use such clauses against only you or sue 2 people at the same time?

Think we are biased against brokers? Check out this blog from a lender directly.

Though not outright illegal, learn other ways how brokers can mislead you here, and the laws other countries had to pass to protect borrowers. 

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