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How to protect yourself from shady mortgage lenders
Here is a good article we found, and thought we would share with the rest of you.
By Ilyce R. Glink
May 30, 2014 12:56 PM
Do you really know what you’re getting when you’re offered a mortgage?
Buyers looking for mortgages through GoLoansOnline.com thought they did. They thought they were getting an unbelievable deal on a fixed-rate mortgage at just 2.5 percent.
The reason that deal was so unbelievable: When those borrowers got to the fine print, they discovered it wasn’t real.
It turns out, the company was advertising adjustable-rate mortgages as fixed-rate mortgages. Adjustable mortgage rates are typically lower than fixed rates because they are guaranteed for a smaller, set period and then typically increase over time, while fixed mortgage rates are guaranteed for the life of the loan.
While the case of GoLoansOnline.com was relatively open and shut. The Federal Trade Commission fined them because it’s illegal to bury disclosures in fine print that contradict a more prominent advertising pitch other deceptive practices in the mortgage process can be harder to spot.
Because of all the rules, changing regulations, and moving parts associated with the mortgage process, it can be difficult for borrowers to tell the difference between a reasonable adjustment to a loan and a ridiculous one, or the difference between an average rate and an exorbitant one.
If you’re shopping for a loan, follow these five steps to protect yourself against shady lenders.
1. Know your lender.
This is the simplest and most straightforward piece of advice you can get, but that doesn’t mean you shouldn’t take it seriously.
Your best bet is someone whose business is based on referrals, who is licensed, and handles a lot of loans every month. Your lender should also ask you a lot of questions. If a lender or broker is quoting you mortgage rates without asking about your job, income and credit, you really can’t trust the quote, says Kelly Zoudo, vice president and branch manager of Des Plaines 1st Advantage Mortgage outside Chicago.
Your lender should also be willing to educate you on the mortgage and home buying processes, says Mike Copley, head of retail lending products at TD Bank.
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“Your lender should talk with you without using industry jargon, keeping it as simple, clear and concise as possible,” he says. “If anything doesn’t sound right, ask more thorough questions and if he can’t answer those politely and professionally, maybe back off and comparative shop.”
2. Know the difference between the rate and the APR.
When you’re shopping for a loan, you may be quoted both the rate, or the effective rate, and the annual percentage rate, or APR. The APR is the rate plus a bunch of other closing costs, and they vary from lender to lender. The APR will always be higher than the effective rate and it’s the rate you need to pay attention to when comparing offers, though it’s not always the rate you will be initially quoted. If your lender doesn’t automatically give the APR, always ask for it.
3. Know what “no closing costs” really means.
You may hear a lender say, “We don’t charge any closing costs.” But he may be very carefully phrasing that to make it seem as though there’s no closing costs, when in fact there are.
It’s extremely rare for you to have zero closing costs. If you hear this from your lender, you need to follow up and ask him to detail and explain all additional fees and costs beyond the interest rate–whether they’re rolled into the APR or charged separately—and who is charging them. A lender may say that he is not charging closing fees because he is not charging them, but you will still be charged closing fees by other parties. He may also hide the fees by rolling them into the APR rate, Zoudo said.
“Some loan officers will say, ‘Hey we have no closing costs,’ so you’re not bringing the money to the closing, but you are paying the closing costs,” he added.
That’s why understanding closing costs is so important.
Bottom line: “If you’re not dealing with a legitimate organization, they will have closing costs when they say there’s no closing costs,” Zoudo said.
4. Know the usual fees.
Typically you will see origination, appraisal, processing and underwriting fees, Zoudo said. These will typically add up to around $2,000. You may also be charged title fees and transfer fees, which are usually based on the cost of the home. Plus you may pay points, or put an escrow deposit for taxes and insurance. Doing a simple check online when you have your loan documents in front of you should reveal any weird or exorbitant fees.
5. Know why your offer may change.
Once you have a home picked out and the seller has accepted your offer, you can lock in a rate. Afterward, your loan shouldn’t change much, and if it does, your lender should disclose every tiny change.
“You should be suspicious with every move that is made on the loan,” Zoudo says.
Though there are some legitimate reasons for a loan to change—an appraisal comes in low or the title company the seller is using charges more than average—they’re rare and should be minor. If a lot changes before you hit the closing table, it could be a sign that your lender wasn’t experienced enough to give you an accurate quote in the first place.
Remember that you should expect great service from your lender. Because interest rates are so low right now, most companies can’t offer much lower rates to win you over. Service is the differentiator between companies, Copley says.
“It’s like any relationship you have with someone; if you don’t feel like the information you have sounds right you should ask a lot of questions and if there’s a way to validate the answers you’ve been given, do that,” he says.
Ilyce Glink is an award-winning, nationally syndicated real estate columnist, blogger and radio talk show host, and managing editor of the Equifax Finance Blog. Follow her on Twitter @Glink
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Why the refinance boom is far from over
Here is an interesting read we thought we would share.
Why the refinance boom is far from over
Rising interest rates might slow the refinance boom, but the trend is far from finished.
When interest rates hit record-setting lows in 2012, the mortgage industry experienced the peak of a refinance boom lasting for three years. But with rates on the rise in 2013, has the boom gone bust?
Not yet, according to mortgage industry experts.
“It’s been stalled, slowed down,” says Aaron Vantrojen, state president of the Arizona Association of Mortgage Professionals. “With that being said, there are a ton of people who have haven’t refinanced for whatever reason and still can.”
Freddie Mac, the government-backed home loan agency, noted in its “2013 First Quarter Refinance Report” that refinances made up approximately 70 to 75 percent of single-family home loan originations in 2012. By the end of 2014, Freddie Mac projects the percentage of refinances will drop to about 50 percent of all loan originations.
But Frank Percival, board president of the Washington Association of Mortgage Professionals, says lingering effects of the refinance boom are still in play for borrowers looking to take out a new home loan.
“It’s not over yet,” Percival says. “It’s more of a bang than a boom. When there’s an increasing rate market, it causes some folks debating about refinancing to put the brakes on, and others take a wait-and-see approach.”
Are you on the fence about refinancing your home? If so, keep reading to find out why the refinance boom isn’t over for everyone.
Reason #1: Interest Rates Are Still Relatively Low
Sure, there’s been a lot of news about rates sky-rocketing, but guess what? They’re still near historical lows.
In fact, in its “Weekly Primary Mortgage Market Survey,” Freddie Mac says the average rate for a 30-year fixed-rate mortgage (FRM) was 4.4 percent for the week of August 15, 2013. That’s nearly the identical interest rate for the same time in 2011, when the refinance boom was in high gear.
“In the last 30 years, it’s only been in the last four that we have seen rates below 5 percent,” Percival says. “It’s definitely something people should take advantage of again. If trends follow suit, it might not be another 25 or 30 years before we see rates this low.”
Percival suggests that if you are a homeowner with a 30-year fixed-rate mortgage over 5 percent, it might be worth it to investigate whether a refinance in the current market could save you money.
Homeowners may also want to check whether getting an adjustable-rate mortgage (ARM) could save them money, suggests Percival. That’s because initial ARM interest rates are significantly lower than the rates for a FRM. For example, the interest rate for a 5/1-year ARM – according to Freddie Mac’s weekly report – was 3.23 percent for the week of August 15 (more than 1 percent lower than the 30-year FRM rate we mentioned earlier).
A refinance to this type of ARM would mean a borrower would have a 3.23 percent interest rate for five years before it would change, either up or down, depending on the market.
“If you’re not planning on keeping your loan for 30 years, maybe getting a five-year note with an ARM makes sense,” Percival says. “The potential savings or lowering a mortgage payment are huge, tremendous.”
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Rising property values, according to experts, could have a positive effect on extending the refinance boom.
“More equity means you have better pricing for a refinance,” Percival says.
Equity, as defined by the U.S. Department of Housing and Urban Development’s glossary, is “an owner’s financial interest in a property, calculated by subtracting the amount still owed on the mortgage loan(s) from the fair market value of the property.” And because property values are on the rise, homeowners are starting to find themselves in better positions to refinance.
“A lot depends on the area where you live,” Percival says, “but property values are higher than before the bubble burst.”
How much have home prices improved? Clear Capital, a provider of data solutions for the real estate industry, released results of its “Home Data Index Market Report” on August 6, 2013, and reported that national home prices increased by 9.3 percent over the last year.
“If your home value is improving, it helps create a bidding war,” Percival says. “Your neighbors will get higher-than-asking-price for their homes, and anyone who wants to refinance will go from being below market value to above market value.”
Reason #3: Government Refinance Programs Are Still Available – For Now
President Obama gave a speech on August 6, 2013, in Phoenix, where he proposed for the first time to “wind down” Fannie Mae and Freddie Mac in an effort to overhaul the two mortgage-finance companies.
Does that mean the refinance boom is over for people who might consider using government programs to refinance? The answer, according to Percival, is that Fannie Mae and Freddie Mac are currently viable options for homeowners interested in refinancing. But, their future is uncertain, so homeowners should take advantage of these programs now – when they’re still available.
So, what programs should homeowners look into?
If your home loan is owned or guaranteed through either Fannie Mae or Freddie Mac, you might be eligible for a refinance from the Home Affordable Refinance Program (HARP). According to Freddie Mac’s website, the program is “designed for homeowners who have not been able to refinance due to a decline in the value of their home.”
“These programs are crucial,” Percival says. “They might be the only refinance opportunity for some people in places where the property values have not yet increased enough (to improve their equity).”
In April of 2013, the Federal Housing Finance Agency (FHFA) announced it had directed Fannie Mae and Freddie Mac to extend HARP by two years, to December 31, 2015.
The Bottom Line
Percival suggests homeowners take a proactive approach when they start thinking about refinancing. He says it makes sense to consult with your mortgage professional on regular basis – once every three to six months or so – to see whether refinancing could help save you money.
“I think people are starting to realize the rates are still pretty good, and we’re starting to see clients come back,” Percival says. “It’s not a boom anymore, but a bang – a good bang that could turn back into a boom.”
