The One that Got Away: Bait and Switch?

HookI don’t mind losing a prospect (someone who’s shopping rates) to a fellow Mortgage  Professional, I do have an issue when I feel the shopper is being fooled or mislead by a loan originator.  Late last week, a "prospect" who had been asking for various scenarios kindly informed me that they decided to go to another lender who was offering a better rate.   Not a problem.   I do like to find out why and what was better than my Good Faith Estimate. 

The scenario:

  • 30 Year fixed rate/cash out refi
  • $417,000 loan amount with a home valued at 1 mil
  • No points (typically a point/1% of the loan amount equals 0.25% to rate).
  • No reserve account (this cost 0.25% in fee).
  • Full doc for a self employed borrower with excellent credit
  • No prepayment penalties

My Good Faith Estimate dated January 17, 2008 factoring in all of the above provided a note rate of 5.750% with an APR of 5.800% with total closing costs just shy of $2750 (title, escrow appraisal, etc).   Note:  I pride myself on having my GFE being as close to the final HUD as possible.  In fact if anything, I’d rather my estimate be higher to start with and have my client pleasantly surprised with lower costs at closing (instead of the alternative).

Nommag72008_3 The prospect selected another lender who’s quoting 5.25% with a total of $4,000 in closing costs.  I have searched all the lenders I work with and I have also checked out local credit unions.  I can’t find this anywhere!   5.25% may be available at a minimum of 1% discount/origination fee.  1% in fee would place the cost on this loan at $4170.  Then factor another 0.25% in fee ($1042) if the client opted to pay their taxes and insurance on their own.  How is the title, escrow and appraisal going to be paid?  This just does not pencil out. 

It smells a bit fishy to me and this type of volatile market may be tempting for some LO’s to "gamble" the market…betting (and praying, or should I say preying) that rates will improve to match what they have told a client they are locked in at.   It’s a pricey game that some LO’s make their keep playing.  As long as the LO honors the lock commitment to the prospect at what ever cost to the LO (in the event they lose big and rates don’t match what they’ve told the prospect they have), I have no issues.   If the LO begins to squirm should rates rise when they really have no lock at the promised rate…it’s foul play. 

Borrower beware.  I hope I’m wrong. 

More from the Misleading Mortgage Junk Mail Bag

Yesterday’s prize piece of junk mail has to be one of the worst mortgage mailers I’ve seen in a while.   It states:

Dear M/M Porter,

Congratulations!  We have great news regarding your account originally funded with Mortgage Master Svc. Corp. …

Note:  Who ever shows as the lender on your Deed of Trust is public record.  It’s not magic that someone has this information.   This information is available for purchase from the credit bureaus, title companies or many other data resources.

We are happy to inform you that you have been preapproved for a new mortgage loan that can substantially lower your monthly payment…we can "freeze" your current interest rate and lock you into on of our "fixed" product lines.

We do not qualify for the Bush/Paulson "freeze" plan.   Nice play on trendy mortgage words.

The Federal Government has issued new incentives on 30 Year Fixed Rate Mortgage Loans through FHA & Fannie Mae!  These incentives have considerably lowered fixed rates and made refinancing attractive again!

We’re still waiting on Congress to work out mortgage plans.  Fannie & Freddie now have risk based (credit score sensitive) pricing for a-paper.   Rates are attractive right now due to investors seeking safety in mortgage backed securities (bonds) instead of stocks.

This promotion will expire January 28th 2008!  However, as an added incentive for you to call us right away, there is an immediate opportunity for you to "skip your next two mortgage payments"!!

Ya gotta love the two exclamation points.  The letter goes on how we must call right away and is signed "Have a blessed day!"

Under the signature, it states rates low as blah blah blah, which is an obvious option ARM and does not include any APR.   This is pure trash.   In the fine print below that the letter does state the letter "is not a direct solicitation endorsed or sponsored by Mortgage Master Srvc Corp".   Duh!

What now?  No where on this letter can I see who the lender is or if they are licensed do provide mortgages in Washington state.   Letters that are a solicitation for mortgage loans that are misleading such as this should be forwarded to DFI to investigate.

Here’s the address:

Enforcement Unit, Division of Consumer Service

DFI, P.O. Box 41200, Olympia, WA 98504.

Please don’t select your Mortgage Professional by a mailer such as this one or a phone call from a total stranger.   Get referrals from your friends, family, co-workers or professionals you trust and respect.   If you had a good experience with your previous Mortgage Professional, contact him or her if they are still in the biz.  If it looks too good to be true, it probably is!

I’m pulling my funds from Washington Mutual

I opened a new bank account to begin transfering my funds out of Washington Mutual.   I said I was going to do this when they ticked me off the last time…now it’s done!  What did WaMu do this time? reports:

"First American Corp., the largest U.S. title insurer, was sued by New York Attorney General Andrew Cuomo for allegedly inflating home values under pressure from Washington Mutual Inc…

First American and eAppraiseIT “signed over their independence to Washington Mutual,” said Eric Corngold, executive deputy attorney general for economic justice. Cuomo said Seattle- based Washington Mutual is not being sued because of questions over federal jurisdiction.

Cuomo, 49, conducted a nine-month investigation and the evidence against First American is “damning,” he said. It includes e-mails between executives at the appraisal company and Washington Mutual that show Poway, California-based eAppraiseIT “willingly violated” state and federal regulations that call for independent home appraisals."

CNBC’s video from this morning covering this alledged fraud.

Our office has access to eAppraiseIT and we don’t use it.  Although they promise a quick turn around time, I’m not willing to hand over who does the appraisals for my clients.   I completely trust the appraiser I like to use.  If he says the value isn’t there, I trust him.  It’s in the home owners and home buyers best interest.   If this allegation is true, I’m disgusted beyond belief.   

It’s upsetting that First American seems to be getting the brunt of the bad press at this phase and I do hope the appriopriate authorites investigate Washington Mutual regarding this situation.

I’m sure WaMu will not miss my checking and savings account.  I meant to close it a month ago when they insinuated that the current mortgage situation lies most heavily on the brokers.  Honestly, I don’t know how any mortgage broker can keep their personal accounts with WaMu.  They are NOT the friend of my family!

Update 11/2/2007:  Seattle PI reports on WaMu Faulted on Home Loans

Picking your next mortgage by rate shopping? You might as well be playing Liar’s Poker.


Rate shopping to select who will be assisting you with your next mortgage is similar to playing “liars poker”.  The Loan Originator who is the most successful at bluffing wins.  The fact is, unless you’re locking in the rate at the moment you’re shopping, you don’t have that rate.  It’s a rate quote–that’s all. Mortgage rates change throughout the day.  They are based on mortgage backed securities: bonds.   Some lenders I work with offer “live pricing” and others issue rate sheets; sometimes we can have several rate sheets offered by a lender during one day.

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Please Don’t Neglect Your Unhealthy Mortgage

ErToday I received a phone call from a CPA who was trying to help her clients who have a "toxic mortgage".   She was hoping I would be able to save them…there was a time that I probably could perform a "rescue".   In fact it was just a few months ago before the current mortgage melt down.   Believe it or not, when applied correctly, subprime mortgages could mean the difference of someone being able to save their home assuming they were able to be disciplined enough to keep (or get) their finances healthy.  This family will not qualify for FHA or FHASecure (they don’t have an ARM that’s adjusted).   What they need is a subprime (now known as "non-prime") mortgage to buy them a little time.   Now their time is running out.

Part of their problem began with working with an unsavory loan originator who is now out of the business.   The LO brokered their loan to a subprime company I would not work with.  (Even though we’re approved with around 80 lenders, give or take depending on the day, I tend to select 5 preferred prime lenders and 3-5 subprime/alt-a…this lender was not on my list of preferred). 

Shortly after closing, their lender informed them that they did not have home owners insurance…they did.  They provided documentation showing their insurance to the lender.    The lender did not respond and instead, ordered insurance for them at a hefty price…jacking up their payment beyond what they can afford.   Now they’re sliding down a very slippery slope and the lender is not cooperating.   They are behind on their mortgage a couple months.  They called out for help too late.   

NOTE:  Other lenders may be more willing to cooperate with homeowners…you need to act quickly and contact your lender if you’re having difficulty with your payment. 

Homeowners:  the very moment you think you may be having trouble with your mortgage or debts, please contact your Mortgage Professional right away.   If you don’t have one, you can always contact your CPA or other trusted financial advisor for a referral.   Please don’t wait until you have a "mortgage emergency"…get help, even if you just have the sniffles.

Trusted Advisors (Real Estate Agents, CPAs, CFPs, etc): Please keep an ear out for your clients who may have adjustable rate mortgages or are may be having difficulites with their mortgage payment.   Even if an ARM isn’t scheduled to adjust for 12 months or more, the sooner someone meets to with a Mortgage Professional to make sure their credit and everything else is in line to restructure the mortgage (if needed), the better for all.

All home owners should meet with their Mortgage Professional at least annually to have a "mortgage check up" or Annual Review.   This is a service that I provide to my clients.  I’ll provide more information about the Annual Mortgage Review in a separate post.   

My point is, the more time you allow yourself to fix a "sick" mortgage situation, the better your odds are of finding a cure.

Bad Actors

This website was just brought to my attention.  Fraud Problem has an updated list naming individuals who have been denied a Loan Originator License for the State of Washington.   DFI posts the same information.

The largest benefit of Washington State’s licensing law for loan originators who are employed by a Mortgage Broker is that the bar of entry has been raised.  It’s true that prior to this law, one just needed to fog a mirror to be a LO.  It didn’t matter if they were a felon, had committed fraud or if they were competent.   

Over the past month, I’ve had individuals who have received bad advice and have also relied on a "bad actor" instead of a Mortgage Professional for the financing of their homes.   Here’s a link, also from Fraud Problem, on what to do if you have a complaint from working with a "bad actor".  Here is DFI’s link to file a complaint.

Since mortgage brokers and mortgage bankers are regulated by different entities, it can be tricky and take some work to find out where your complaint should reach.

I want my industry to be cleaned up.   Helping people with the financing of their home and proper managing of their mortgage is a noble profession.

If you consider that 70 are listed on Fraud Problem’s site and there are an estimated 15,000 loan originators…simple math tells you that 0.5%* of the industry were unsavory.   I’m not defending the "bad actors" in any way, I am standing up for the 99.5% of us in Washington State who are good.   

*I’m sure this figure will increase as the background checks continue…however, the good will out number the bad. 

Nothing irks me more than a bad LO

Pissed_2I’m currently working with two of my returning clients who opted to use another LO for their last refinance.   I know that in spite of my marketing and efforts to keep in touch with the families I provide mortgage advice to, not all will stick with me.   I can live with that.  What gets me pissed (sorry…no other word for it) is when I hear that they were taken advantage of.  ‘

Client A recently divorced and needed to refinance in order to remove his ex from the mortgage.  He met a LO who suggested he do an option ARM and make just the minimum payments while investing the difference into an insurance annuity.   She was kind enough to provide this advice along with a copy of Doug Andrews book, Missed Fortune.   While this strategy may work for some people, it’s certainly not a one size fits all.   Client A has perfect credit yet this LO managed to tack on a 3 year prepayment penalty which Client A only learned of when he was signing his loan papers at the escrow company.   Watching his equity evaporate by the negative amortization made Client A very nervous.   Many don’t have have the risk tolerance to use their home as an investment vehicle–I wouldn’t do this loan for me.  Nor do I recommend it for my clients.   Client A is now refinancing back into a long term fixed rate.  I estimate the other LO cost Client A more than $20,000 in lost equity, prepayment penalties and refi closing costs…all in less than a year.

Client B is a similar story.  I helped her with her financing for the purchase of her home.  She’s a single Mom who’s ARM would be adjusting next summer.   She began dating a LO who wanted to help her out with lower mortgage payments and convinced her to refinance with an Option ARM promoting the low payments.   He failed to explain what would happen to her equity if she opted for the low payments.   With the deferred interest (negative amortization) and a second mortgage, she has little to no equity to refinance at this time.  Oh yeah, this LO was kind enough to give her a parting gift of a prepayment penalty as well.   

Note:  a 3 year prepayment penalty equals approx. a point in your LO’s pocket if you have an option ARM.  Plus, with an option ARM, the higher the margin is, the more money the LO is raking in.  This compensation is in addition to any points or fees that are being charged. 

I am thankful for new business and my clients…it does sicken me to see how damaging a bad LO can be to a person’s finances.   Every once in a while at RCG, Jillayne Schlicke and I will go around and around about how bad LOs are (she calls us Mortgage Retail Sales People and I prefer, Mortgage Professional)…I feel like I’m constantly fighting to bring up the caliber of my industry.  Yes, there’s some bad actors out there.   I’m ever hopeful that with our current market and licensing, many are flushed out for good.

This is a respectable business.  I’m proud to be a Mortgage Professional and I don’t relate or associate myself with MRSP’s.   I know plenty of other Mortgage Professionals in my industry…and I just wish that my clients, if they’re not working with me, would have wound up with a professional instead of a predator.

More confessions from the Subprime Lender

I sent an email to the Loan Officer who contacted me last week wanting advice on how to create a referral business with a link to the post about him.   His reply is worthy of a new post…   

"Well I can’t say that I disagree with the message being sent by the post and I agree that people need to be made aware of the dangers that exist out there for potential borrowers. I appreciate you not using my name; I truly am an ethical mortgage originator. I always work in my client’s best interest and I will never give anyone a bad loan again. I was a novice then with regard to the lending industry. Now I constantly study and keep myself updated on market trends; I know exactly what is going on in the mortgage industry and I make a point of educating my borrowers properly so that they are never taken advantage of. I work from 9am to 7pm everyday then I go home and study mortgage publications (Scottsmans Guide/Orginator Times/The Mortgage Daily ..etc.).

I am well versed now when it comes to ethical lending practices, providing the utmost quality of service, and mortgage loan products. I am no longer “brainwashed” by my former employer, but everyone should know that there are still lenders out there preying on innocent people on both sides. When I began in this industry at the aforementioned company I was so excited to be a part of something so “great”. Something that people need to be aware of is that there is so much involved in our business. When I began my senses were overloaded every day of training; they piled so much information on me about how superior “we” were, how much faster we are than everybody else, how great our rates are, and how low our fees were. When people told me another company was offering them a better deal I did not believe that it was possible. I told them things like “we do over $100,000,000.00 per month in volume which affords us volume wholesale discount pricing” which was true. What I didn’t know was that the rates that I was selling based on macro enriched excel spreadsheets were not real. I didn’t know that once it hit processing everything would change; by then I was already on the next file (aside from “chasing stips”). Another thing that the company did was keep people burned out so that they couldn’t decipher what the hell was going on. They insisted that the magic number of OFA’s (internal reference meaning “out for appraisal”) was 10 per month in order to get 4 closings. That means that in a good month their entire staff of LO’s are chasing stips down for 10 files (at a minimum) while only closing 4 loans; That’s a lot of “busy” work.

Now in the last week I have really reached out to people in my community and across the nation for marketing advice and for advice on building strong referral partnerships. I do not need advice on how to operate ethically because as I said I operate with the highest level of integrity and I always have … That is why I lost sleep when I found out the truth about what was going on with my former employer and that is also why I left the company. Now I am well educated and I am truly “in the business that I am in”. I wanted to write you this update to clarify where I stand in this business. Now I will never be taken advantage of again and I work hard to educate my clients so that they will never be taken advantage of."

I’m sure this person has learned a lot from their past.  Kind of reminds me of when an ex-burglar becomes a security expert.  I do believe that this LO fell into the wrong company and is not a bad person. 

This is the difference between working with someone who is transactional vs relationship based.   If a LO is just looking at the client as a transaction, trying to make 10 files a month to satisfy production goals, they’re not focusing on long term relationships with a borrower.   Odds are, they do not provide the level of service that would encourage anyone ever returning to them. 

When someone is providing mortgage advice with the expectations of maintaining a relationship with the borrower beyond closing, it’s a much higher level of service.  If I bump into one of my clients at the grocery store, I want them to be happy to see me–not aiming a tomato at my head!   Mortgage Professionals who have a business practice based on retaining relationships will provide "long term" advice and will provide a level of service that they hope will not only encourage the borrower to return, but also to recommend their friends and family to them. 

This LO seems to have made a mental shift in his business practice after realizing that the company he was previously employed at was potentially harming borrowers.   I welcome more "good guys" to our industry anytime!