Mortgage brokers are hungry this spring. Make sure they don’t eat your lunch.
In the great refinancing boom of 2003/2004, brokers and lenders did not have to work very hard to make money. Mainly, they had to answer their phones and explain to eager borrowers why they had to wait a month or more for a home appraisal.
But even though rates have barely moved up, there’s not as much refinancing going on. And with home prices surging, it sometimes takes creative — and more labor intensive — financing to get potential buyers qualified for the giant-size mortgages they need to get into houses.
It all points to a harder life and reduced income for mortgage brokers. Some of the less ethical ones are softening the blow by padding their fees, steering clients to more expensive mortgages and taking advantage of unwary consumers.
"They were order takers," says Robert Pessemier, of Money Metrics, an Issaquah, Washington, financial advisory firm which analyzes mortgages for clients. "Now they have to work harder and they are trying to get more out of each deal they find."
Some of the tricks of the trade, according to Pessemier, involve building fake fees into closing documents, not providing those documents in a timely and clear manner, and having a wink-wink deal with the lender in which the rate is quoted higher than the lender actually offers, so the broker can pocket the difference.
"Some companies resort to underhanded methods in order to get business, or to pull business away from competitors," writes mortgage broker Tanya Higgs in a report on "the tricks loan officers use to get your business ... and take your money," available at her Web site.
To some extent, you can protect yourself from bad lenders simply by comparison shopping, visiting independent Web sites to check current rates, and asking for loan offers from more than one broker, and directly from lenders. Most newspapers run mortgage tables in their weekend real estate sections; there is solid data online at www.hsh.com, and www.bankrate.com.
You can also get a knowledgeable expert to review your loan. Pessemier offers a Mortgage Second Opinion Service (SOS) on his Web site. For $200 for the first loan and $75 for each additional loan, he will review the mortgage documents and the deal and report on whether it’s a good one or not. Another company, Loantech has a long history of auditing mortgages, but specializes in analyzing variable rate mortgages and escrow accounts.
If you do hire someone to review your loans, make sure they are not in a position to sell you a loan of their own. And be on the lookout for these bad-news brokerage strategies.
Taking a kickback. You may be offered a higher than necessary rate because part of that payment is compensating the broker. Know what your credit score is, and what current rates you’re supposed to qualify for, before you accept a loan.
Fudging the good faith estimate. It is a federal law that borrowers should get a good faith estimate within three days of applying for a loan, yet many lenders don’t provide it until you are so close to closing that you’re afraid to switch lenders. Ask for it when you apply for the loan, and let the lender know you’re aware of the rule. If there is no broker’s fee on the statement, ask the broker directly how much he will make from your loan and how that will be paid. Perhaps an additional point or two will be added at closing, says Higgs.
Piling on ridiculous fees. Pessemier says he has seen closing documents that include fees for providing that legally required good faith estimate. Oh, brother. Higgs notes that some brokers will hide points in junk fees. “Rather than informing the client that his fee is a point, a dishonest broker will hide the point in various fees such as an application fee, commitment fee, rate lock fee, credit report fee, processing fee, administrative fee, or some other negotiable fee. The way around this, she says, is to get three good faith estimates from three lenders.
Making last-minute or after-the-fact changes. You can go to closing and see fees that weren’t on the good faith estimate. Some lenders have tried raising fees after closing, by noting that they made “mistakes” on the loan document.
You have few choices here. You can walk away without signing, sending you back to square one and perhaps losing you the house you want. You can sign the documents and then make a written complaint to the lender and the mortgage broker, threatening to complain to the Federal Trade Commission and your state’s consumer advocate, if you don’t get a refund of the piled-on fees.
To avoid that situation, try to limit your shopping to brokers or lenders who come recommended to you by friends and relatives who have completed the process successfully.
