"In a refinance
market, you have to be careful because a lot
of people come into the industry at those
times, a lot of companies come into the
market, a lot of rookie originators come
into the market that may not have the
experience level you're comfortable with.
People know there's
volume and there's money to be made in this
business right now. Refinancing or
purchasing a home is usually the largest
transaction a person is going to make in
their lives and you don't want to be the
guinea pig.
All lenders and
brokers aren't out to fleece customers and
the complexity of the home loan process --
rather than anyone's malfeasance -- takes
the blame for some of the obstacles
consumers face. Many trip-ups don't rise to
the level of "predatory
lending," either.
Nevertheless, they can cost borrowers
serious time and money, and guarding against
them becomes even more important during the
boom times.
There's kind of a
range of games that get played and they're
pretty broad, from fairly benign stuff to
outright fraud.
Problems can pop up
long before a borrower fills out any
paperwork. Indeed, just finding out how much
a mortgage costs can be confusing.
Be as specific as
possible
Many potential
customers simply call lenders up and ask,
"What's your rate?" But they fail to
indicate what kind of loan they need, how
long of a lock period they want, how many
discount points they're willing to pay, how
long the rate is good for or anything else.
Consumers have to specify all of these
things or lenders can pretty much say
whatever they want, and then provide
different figures when the customers come in
and blame the lack of specificity.
A loan with a lock
period of just 15 days, for instance,
usually has a lower rate than one that a
consumer can lock in for 60 days. Most
consumers opt for loans with longer locks
because they need more than two weeks to
close. But loan officers sometimes quote
rates on their shortest-lock loans over the
phone or in print just to sound cheap,
knowing full well that many callers will
never be able to obtain those loans.
Companies can provide rates that include
several points to look better, even though
many customers either can't or don't want to
put down several thousand extra dollars at
closing.
Most of the
newspapers, at least once a week or more,
there will be a list of rates by lenders
that seem low. But frequently you'll
find the rates they put in the paper were
rates that were really never available. They
kind of low-ball their rate. When you come
in, they'll tell you the market has moved
and the rates are now 'X.'
Figure in the fees
Borrowers often forget
to ask about fees, and don't compare lenders
based on those costs. That allows companies
to pad their bottom lines by adding
"document preparation fees," "underwriting
fees" and other miscellaneous charges to the
loan at closing. Lenders don't control
certain fees for services provided by third
parties, such as title searches and
appraisals. But they can adjust their own
fees, so consumers who know to do so will
negotiate.
"It's a competitive
business, But if they go to one-stop
shopping and let somebody else handle it for
them without them doing homework themselves,
they could end up paying more than they need
to."
Don't believe
everything you read
Consumers need to
watch out for advertising tricks, too.
Companies have been plugging "no cost"
refinance loans lately, but the tagline
really means "no out-of-pocket costs at
closing." Borrowers pay higher rates on
these mortgages and lenders use the extra
money to pay the costs themselves.
The
annual percentage rate, or APR, found in
advertisements can be misleading as well.
Mortgage lenders don't always include all
the fees they charge in the calculation that
determines APR, so customers who use that
figure to shop rather than an itemized
breakdown of rates, points and fees may end
up comparing apples to oranges.
Of course, it's
difficult for borrowers to compare fees when
they don't know what they are. By law,
lenders and brokers don't have to give
what's called the Good Faith Estimate
document to customers until three days after
they apply. But there's nothing preventing
shoppers from asking for it before
committing to anything. Reputable lenders
and brokers will provide one.
Know the score
After customers apply
and have their credit scores pulled by their
lenders, they should ask for those too.
Companies have no obligation to share them,
but those scores often dictate whether
borrowers get loans and how much they have
to pay for them. Customers who obtain their
scores can get rate quotes tailored to them,
rather than receive quotes that may apply
only to borrowers with better or worse
credit.
"If I would say at the
application stage to my broker, 'Hey, when
you pull my credit report, will you tell me
what my scores are?' and he said no, I think
I would go somewhere else, Why not go with
somebody who is willing to tell you? You
need to know."
Last-minute maneuvers
Closer to closing,
borrowers also have to watch out for
counteroffers from their current mortgage
servicers or lenders. When borrowers
refinance their loans, their new lenders
request "payoff letters" from their old
lenders. These letters spell out exactly how
much the old lenders are entitled to at
closing and are often the only indication
that a borrower is refinancing.
To avoid losing
customers, lenders who are about to get the
boot sometimes swoop in and offer to lower
their borrowers' rates or refinance them
into new loans themselves. While the offers
can be competitive, they aren't always so.
Plus, they usually come very late in the
process. Borrowers who accept them can end
up having to forfeit application fees or
other monies to the lenders they planned on
using.
By learning about all
of these miscellaneous traps, consumers can
take advantage of today's lower rates and
refinance without worrying about being taken
for a ride. After all, experts say,
preparation is the best defense against
shady lending practices.
"It comes back to
education." "If I've made five calls or I've
gone to Web sites and looked and know the
rates that are there, it's going to be
pretty easy for me to know whether they're
pulling the wool over my eyes."
Mortgage Glossary4
