A 2004 Consumer Reports story, entitled “Online Mortgage Deals May Have Shaky Foundations,” pointed to one particularly frightening scenario in which an individual with a 710 credit score filled out a few online mortgage applications and was barraged by lenders. As it turned out, his credit score eventually plummeted to 520 because the credit agencies showed 103 credit inquiries on his file within two months. That volume of report queries can lower a score because such activity suggests that the potential borrower has a desperate need for credit — not good. And the borrower didn't even know this was happening because he probably wasn't checking his credit report.

Leading loan sites like E-Loan.com and LendingTree.com give visitors the option to defer credit checks until they choose an individual lender they want to work with, but there is no federal law requiring all Internet lenders to do this.

A June 2007 New York Times story pointed out that Internet security experts were watching a new kind of mortgage fraud online — illicit sites that promised customers better credit scores by hitching customers to a stranger's credit card or providing them pay stubs from a bogus company. “One has even offered a well-stocked bank account to rent for a month or two,” the story noted. It pointed to a report issued earlier in 2007 by the Virginia-based Mortgage Asset Research Institute. That report examined prime and subprime loans in which some sort of fraud occurred. It noted that incidents of false tax or financial statements had risen to 27 percent in 2006 “from 17 percent in 2002; fraudulent verifications of deposit had climbed to 22 percent from 15 percent four years ago; and false credit reports rose to 9 percent from 5 percent in 2002.”

The report doesn't say how many of those fraud instances were Internet connected, but it's an indication that any consumer has to be careful when investigating loan possibilities online and that troubled borrowers can't count on an easy rescue through fraudulent practices offered online.

The best approach may be to simply use these sites as a research tool at the beginning and zero in on attractive offers by phone or simply see if you can match the best offers locally. Consumer Reports suggests the following: