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    Email: joe@joemetzler.com

  • Protect yourself from predatory lenders

  • Protecting yourself against predatory lenders, mortgage scams, bait-n-switch scams, mortgage fraud, and Loan Officers screw-ups can be a challenged. Most people are gullible, especially for inexperienced shoppers who don't know what to watch for, the home finance world  can be a scary place to travel.

    The internet especially has make it easier for sly mortgage lenders and brokers to mislead and take advantage of naïve consumers using any number of tricks, from quoting bogus rates over the telephone to slipping gratuitous costs into their loans. To avoid these problems -- as well as other trip-ups posed by the confusing mortgage process itself -- consumers have to brush up on their shopping skills.

  • The mortgage market is ripe for bait and switch, and scams

    In the past few years, when the market was hot, a lot of rookie Loan Officers and small brokers came into the market that may not have the experience level you're comfortable with. There was money to be made, and it was easy. Just sit back, and the phone will ring with customers wanting to refinance. The number of lenders and Loan Officers TRIPLED from 2001 to 2005. Lending volume also TRIPLED to the highest numbers in history!

    Now that the big refinance period has ended, and mortgage volume has returned to pre 2001 levels, these newer people are desperate to stay in the business. They will say and do anything to capture a deal. 80% of current Loan Officers came into the business AFTER 2002.

    The reality is that most 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, and you'd be shocked who some of the biggest offenders are today.

    For example, a big internet lender who advertises all day everyday (think quick and with rockets). If you look at their interest rate web page, the rates displayed basically match mine everyday. But if you read the small print on the bottom, the quotes are all with 2 discount points added on (2% of your loan amount). Yikes... Classic example of bait-n-switch, while at the same time being 100% completely legal in their advertising.

    When getting quotes, 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, 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 interest rates that include several discount "points" to make their rates look better, even though most of our customers either can't or don't want to put down several thousand extra dollars at closing for "points" to lower the interest rate.
    In most of newspapers, once a week or more, they'll have a list of rates by lender. 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 higher. They get away with this because the rate they list in the Sunday paper is usually submitted on Thursday. You read the paper on Sunday, then call the lender on Monday...

    Figure in the closing costs and fees

    Borrowers often forget to ask about fees, and don't compare lenders based on their closing costs. That allows companies to pad their bottom lines by adding "processing 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.

    Don't believe everything you read on the internet

    Home loans is a competitive business. Lenders understand this, so creative advertising is everywhere. 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. There is no such thing as a no cost loan, and there is no way some internet mortgage company has interest rates significantly lower than any other company.

    In summer 2014, AmeriSave Mortgage, a larger internet based lender, paid a $19.3 million dollar fine after the Consumer Financial Protection Bureau found the company engaging deceptive bait-n-switch advertising. The CFPB found the company lured customers by advertising misleading interest rates, charged illegal third-party fees, and more. The CFPB says, Amerisave advertised its interest rates and terms using online banner ads and searchable rate tables on third-party websites. The bureau found that Amerisave posted inaccurate rates on these banner ads and rate tables, inducing consumers to pursue a mortgage with Amerisave. Yet, I continue to see their same unbelievable advertising practices going on everyday.

    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 will provide one. Please read my article- Beware of the Bad, Good Faith Estimate, so you know what to look for when you do get your estimate!

    Bank, Broker, or Direct Lender. All are "Loan Officers", so who is best?

    When you're looking to get a mortgage loan, you may work with a loan officer, but where they work makes a difference! People often confuse the lender types even though all will glean the same results: a home loan. However, it is important to understand the difference between the three types of lenders so you know what to expect from them during the mortgage application process.

    Currently the industry is seeing the biggest problems with loan officers exactly where most customers wouldn't expect. The big banks. Why? Most states have enacted strict guidelines for non-bank lender and brokers. These include criminal background checks, mandatory education, stricter underwriting guidelines, mandatory disclosures, and mandatory licensing requirements. Yet state banking laws can not trump federal banking law. Federally Chartered Banks (all the big bank names you know) only have to follow less restrictive federal law. Thanks Washington!

    But the worst item is that bank loan officers are NOT required to have any state or federally mandated education, they DO NOT have to pass any state or federal licensing tests, and they DO NOT have to have any continuing education.

  • Know your credit score

    After customers apply and have their credit scores pulled by their lenders, they should ask for those too. Mortgage lenders have no obligation to share your credit scores with you up-front, 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. AmeriSave Mortgage, the company fined $19.3 million for deceptive advertising was quoting every client as if they had over 800 credit scores, even when they knew the clients score was much lower.
    If I would say at the application stage to my lender, "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.

    As a side note, if you do start working with a lender, they are required to disclose your credit score as part of your loan application disclosure paperwork (what you sign). They are not required to tell you up-front.

    Beware of Trigger Leads - Don't refinance with you current lender

    When you apply with the lender you pick, of course they have to pull your credit report.  The moment we do, the Credit Bureau is both selling your information to any lender who will pay them for the 'hot lead'. If a lender is pulling your credit, you must want a loan, so you are a hot lead. They try to sell your name to as many people as possible, who will all telemarket you to death.

    If you have an existing mortgage loan, they also sell this inquiry information to your current lender, who will have a retention Loan officer try contacting you right away.  As no one answers the phone anymore to an unknown phone number, they will usually leave an urgent sounding message about the importance of calling your lender back right away. You probably will, thinking maybe you missed a payment or something, but it is just to try to sell you on staying with them.

    If they were so awesome, you would have called them to begin with. To avoid losing customers, lenders who are about to get the boot make up all sorts of stories (well, face it - lies) about them being quicker, cheaper, etc. 

    The vast majority of the time this is NOT true. Loans are 'packaged' to be resold (think Fannie Mae, Freddie Mac). The vast majority of lenders resell their loans and therefore any changes to the original loan require a complete new package, new closing, new note, new closing costs, new appraisal, new everything, just like all lenders. Cheaper, quicker, less paperwork is a bold face lie.

    Plus they usually come into the picture late in the process. Borrowers who accept them can end up having to forfeit application fees, appraisal fees, and risk contract violations on purchase agreements.

    The Bottom Line

    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 called five respectable lenders - I know about what rates and costs are. It's going to be pretty easy for me to know whether one lender is pulling the wool over my eyes.

    How do you know if they are are respectable lender? Read "How to Shop for a Lender" for some good clues.

    One final word of advice. NEVER EVER use an out state internet lender, EVER. Just Don't!

    Although you may have found us on the Internet, we are not an Internet lender. We are a Minnesota based lender with an Internet presence. We lend in MN, WI, and SD. Large internet lenders who've never heard of your community are by far the worst in terms of misleading quotes, miscellaneous traps, and shady lending practices as they have no connection to the community YOU live in.