I seldom publish long letters in their entirety, but I’m making an exception in this column. The letter below is so wonderfully descriptive of the gullible mindset of a victim waiting to be plucked, and the modus operandi of a predator poised to do the plucking, that it is worth the space.

“I received a letter that told me I may qualify for a 1.25 percent home loan. I was skeptical, but I called the number on the letter anyway. The lady who answered said it was a special program offered by their bank that allowed qualified people to obtain a home loan with only 1.25 percent interest. She said that she could run my info through their database to see if I qualified for a processing fee of $49.99. I agreed and gave her my credit card information. Later that night, a man called from the same bank and told me that I did qualify and he asked me if I wanted to go through with it. He said that he would kick back $800 of the banker’s fee to me if I made my decision at that time so that he could meet his quota for the day. I agreed and they called me the next day at work to schedule a home appraisal. Later that day I got a call from my homeowner’s insurance agency asking if it was OK to change the beneficiary on my plan to this new mortgage company. I told them that I hadn’t even signed anything yet and that shouldn’t be necessary yet, but she said that they needed to see that I had changed my insurance before they could continue and that changing the beneficiary back to my original lender was as easy as calling her up and telling her to change them back. I told her she could change what she needed to. Now, I am going down to the lender’s office to bring them some information (the usual pay stubs, bank statements and I.D.) but I am still very skeptical and I’m not sure what to think of this. Is a 1.25 percent loan even possible? What should I look out for? Please respond ASAP because I’m right in the middle of all this and these people seem to work fast.”

This letter illustrates three major characteristics of predatory lenders. First, they appeal to the hidden belief of victims that somewhere out there is a tooth fairy who will solve their financial problems. Despite the expressed skepticism of the letter writer, he wants to believe there is a 1.25 percent mortgage for him. He believes enough to pay $49.99, provide his personal financial information including a credit card number, and change the beneficiary of his homeowner’s insurance policy.

Second, predators exploit the gullibility of those who want to believe the tooth fairy has found them. “He said that he would kick back $800 of the bankers fee to me if I made my decision at that time so that he could meet his quota for the day.” With no information provided on how large the “banker fees” were before or after the discount, this is an absolutely meaningless offer, yet the letter writer accepted it without challenge.

A third characteristic of predators is that they work fast. The fictitious $800 discount was conditional on the victim making an immediate decision so that the man on the phone “could meet his quota for the day.” The last time I heard that line was when I was shopping for a carpet in a Middle East bazaar.

Predators work fast because they want to get the deal done before the victim begins to ask questions they don’t want to have to answer — questions that can give the game away. The question they least want to hear is, “How long does the 1.25 percent rate last?” The truthful answer — it lasts only one month — leads inevitably to the question of what happens to the rate in the second and later months? And that in turn may cause the victim to wonder whether the new mortgage is really better than the one he currently has.

If all borrowers selected their loan providers, rather than allowing loan providers to select them, there would be no victims. Without victims, there would be no predators.

My response to this potential victim was to point out that the 1.5 percent rate lasted for just one month, that in month 2 the rate would jump to the rate index plus a margin, which would almost certainly be higher than the rate he is now paying.

Postscript: Curious as to the aftermath, I later wrote the letter writer again and received this reply.

“I took your advice, and politely declined their offer. They were trying to cover things up about the loan and when they figured out I was on to them they put even more pressure on me. I really don’t need to refinance, but the bait was tempting.”

The writer is professor of finance emeritus at the Wharton School of the University of Pennsylvania. Comments and questions can be left at www.mtgprofessor.com.

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