Property ManagementGetting To The Truth In Lending
When it comes to the mortgage market"s current woes -- mounting civil suits, stepped up regulatory enforcement and imminent reform -- Randy Johnson doesn"t mince words.
With Loan-Wolf.com as a Web name befitting his outspoken approach, the Newport Beach, CA mortgage broker says the mortgage industry"s greatest problem isn"t lax regulatory enforcement or the need for reform.
It"s mortgage mendacity.
With behavior ranging from the "Don"t Ask, Don"t Tell" brand of lying-by-omission to outright predatory fraud, the home lending industry employees too many charlatans, he said during an interview last week when he was asked to share his thoughts on the current mortgage industry brouhaha..
"I think that the most significant problem in the industry today is the proliferation of liars. According to everyone I talk with in the industry, more than 50 percent of loan officers routinely lie about rates. Verbal rate quotes don"t mean anything and are not binding," said Johnson, author of the favorably reviewed "How To Save Thousands Of Dollars On Your Home Mortgage" ($14.95, John Wiley & Sons), No. 4 on Amazon.com"s mortgage book bestsellers" list.
"If you are going to get a good deal, you have to get honest information," he says.
Among other federal steps to stem the tide of baiting and switching, loan flipping, predatory lending, nondisclosure and other illegal mortgage industry practices, U.S. Housing and Urban Development Department secretary Mel Martinez has pledged this spring to issue federal reform proposals for the 1974 Real Estate Settlement Procedures Act (RESPA). RESPA is a federal law designed to protect consumers against undisclosed mortgage costs, fees levied when no services are rendered, kick-backs, or illegal referral fees and other practices the law deems illegal.
But, in an atmosphere of rewriting regulations already designed to protect consumers, how can consumers hope to get honest information?
Get smart, said Johnson, when he was asked to share some tips to help consumers overcome thet state of the mortgage market.
"This may come as a shock to you, but most people -- certainly more than half -- make costly mistakes in the mortgage process. Their mistakes are a direct result of a lack of preparation. They select a loan that doesn"t exactly meet their needs, or they choose the wrong lender, or they lock in at the wrong time, or they choose the wrong rate and fee option. These mistakes cause them to waste thousands of dollars, and they don"t even know it," Johnson said.
"The key to making good decisions -- avoiding mistakes -- is education," he added.
In many cases, consumers are so intimidated by the mortgage maze they don"t make an effort to obtain information easily available from a wide variety of sources from books like Johnson"s to independent mortgage Web sites. Mortgage borrowing blind faith is an oxymoron. Local housing agencies, advocacy groups and consumer agencies either provide counseling or can refer mortgage borrowers to sources of informative aid.
Johnson also offered the following money-saving advice for mortgage shoppers.
Get your credit report. Before you shop for a loan, order your credit report and correct any inaccuracies. Otherwise, the blemishes could push down your credit score and push up your loan costs. If you are financially active, practice safe credit. You should keep tabs on your credit report every six months and at least once a year.
Don"t rate shop by phone. Instead choose a broker or lender you can trust. That means getting referrals from family, friends, coworkers and others you trust who"ve also recently closed a satisfactory mortgage deal. Get several. Interview them. If you are buying a home, you are about to invest in what could be your largest purchase ever and you need someone you can trust.
"Find an honest lender and everything else will work out," Johnson says.
Demand to see the rate sheet. "Getting the rate sheet shows whether he"s telling the truth. If he says 7 percent and one point and shows you a rate sheet that says wholesale prices are 7 at par (with no points), he"s telling the truth (the one point is the borrower"s cost). Otherwise, rate shopping is just finding the biggest liar," says Johnson.
"What is the most frequent complaint about the mortgage business? "He quoted us these great rates, but when we went to sign loan documents, they were different." They weren"t different, he was just finally forced to tell the truth," Johnson said.
Be prepared to walk. "If he refuses to show you the rate sheet, get up and leave. When you find a broker who will work with you, negotiate their commission(the points) and any other fees on top of the money source"s rates and fees. Get an agreement in writing that they will not charge you more than the agreed upon commission," Johnson said. The agreement should cover all loan costs and terms.
Reconsider your reason for refinancing. Lowering the cost of the total amount of interest paid over the life of a mortgage, not lowering your monthly payments, is the most cost-efficient benefit from refinancing. If you are more than five years into your current loan, even if you lower your interest rate 1 percent and select another 30 year loan, you could owe more total interest than you would have owed had you kept the old loan with only 25 years left.
The popular 30-year, fixed-rate loan isn"t always the best loan. The extra 0.50 percent on a 30 year mortgage, compared to a 15-year mortgage, costs $1,000 a year on a $200,000 loan. As soon as you can afford the higher monthly payment, get a 15- or 20-year loan.
Zero-point loans are sucker loans. "They are hugely profitable for lenders, which is why they are willing to subsidize your loan to the tune of $2,000. The "slightly higher" rate can add up to an extra $15,000 over the typical eight-year life of a mortgage. If you are going to be in your house more than a few years, pay points to buy down the rate. You keep the $15,000," Johnson says.
A mortgage is like a credit card. The worst credit card debt management plan ever is paying the minimum monthly payment each month. A 30-year loan"s amortization isn"t much different. Barring prepayment penalties your contract could demand, pay more than the monthly payment whenever you can. At current rates, an extra $10 every month on a $200,000 loan can save you more than $8,000 over the life of a 30-year mortgage.