George's Blog

Real Deal Guy sez Caveat Emptor- “Let the Buyer Beware”

If it sounds too good to be true, it probably is. Too many consumers have been taken in by unscrupulous mortgage loan originators who are in it just for the quick buck, and have no intention of making a career of this business, and providing a beneficial, consultative service. The mortgage loan origination business, like the Real Estate Sales business is just too easy to get into, with low barriers of entry. This ease of entry facilitates fast talkers whose intent is simply to get people to take a loan product that will generate the most income to the loan agent. Mortgage Brokers are most frequently singled out as the culprits, but there are plenty of these types who work at mortgage bankers, banks, finance companies, credit unions as well.

The Trust Issue

How does a consumer determine who is worthy of their trust? What questions should be asked? (HINT- what is your rate is just about the LAST question that you should ask). Everyone wants the lowest rate and the best deal. I have never met a person who didn’t!

But in our haste and greed to get “the best deal”, someone can fall into the trap of being told what they want to hear creating the environment of the “bait and switch”. Believe it or not, there are many loan people who purposely tell people what they want to hear, regardless if it is true or not, never intending to honor what they say. When the customers go to sign their loan docs, the deal is completely different than what they expected. Unfortunately, many people are in a bind, and actually end up taking the bad deal instead of walking out the door, thereby reinforcing and rewarding this outrageous fraudulent behavior. These guys actually base their business model expecting the majority of people to walk out, but count on that there will be a certain (profitable) percentage of people who will take it anyway, either because they are desperate, or don’t read the loan papers.

Another very popular scam is based upon the much maligned monthly adjustable ARM loan, which goes by many names- the Pick-A-Pay loan, the neg-am loan, etc. This is the loan with the very low start rate of 1%- 3%, and can have a negative amortization feature where the loan balance goes up, and can have a prepayment penalty up to 3 years. Many people sell this loan telling consumers that this is a 30 year fixed rate loan at 1%, which is flat out purposeful, fraudulent misrepresentation. The loan has a 30 year term, the interest rate is fixed for only one month, the minimum payment is fixed for one year at a time, and if the interest due every month is not paid, the difference is added to the loan balance. The loan can be had with no prepayment penalty,a one year prepay or a three year prepay. The prepayment penalty should be used as a tool by the loan originator to reduce the closing costs and monthly payment. With no prepay, the closing costs are higher, and the margin on the loan is higher, resulting in a higher fully indexed rate, and with the one year or three year prepays, they can be used to offset some or all of the closing costs to the benefit of the customer. But what happens is that the con artist will not disclose that there is a 3 year prepay, charge the maximum margin resulting in the maximum rebate, and still charge the client full points and closing costs on top of this.

This still happens all the time, and the naïve customer ends up thinking they have a 30 year fixed loan at 1% with no prepay. Hello!! Does a 30 year fixed rate loan at 1% sound too good to be true? Of course it does!!

This is clearly a Fraud, a crime, but sadly, these crimes are extremely difficult to prosecute, and are white collar crimes, not very sexy, consequently the fraudsters who do this are almost never prosecuted.

I also want to make the point that it is not the fault of the loan program, either. THERE ARE NO GOOD OR BAD LOAN PROGRAMS!! Whether the loan is good or bad or not is relative to the needs of the customer, and if they are given the right program for their specific circumstances, if the loan features are explained to the customer AND THEY UNDERSTAND IT!!

I can’t tell you how many people I have spoken with recently who were in trouble on their loans, who admitted they never bothered to even look at their loan papers they signed, and had no idea what they had. DIDN’T YOUR MOTHER TELL YOU TO NEVER SIGN ANYTHING UNLESS YOU READ IT?? LISTEN TO YOUR MOTHER!

Consumers have to be smart, and not engage in behaviors that will facilitate the fraudsters that are out there-

Consumer Tip-

Do some research on who you are dealing with-

Red Flags-

Fast talking telemarketers working out of “boiler rooms”

Selling the lowest payment, not specifically mentioning the rate

Internet websites with no corresponding “bricks and mortar” presence in your county or state

Not giving a good faith estimate of closing costs in writing, or an incomplete verbal low ball quote

Not asking you a lot of questions to determine your needs or goals

Quickly quoting a really low rate

QUESTIONS TO ASK:

Where are you located?

Are you a mortgage broker, mortgage banker, bank, credit union or finance company?

(Yes, it does make a difference)

How long have you and your company been in business?

Are you a member of the Chamber of Commerce and the Better Business Bureau?

Do you or your company have a license? What kind- from the Ca. Dept. of Real Estate, or Ca. Dept of Corporations? What is your license number? (Then go the DRE or DOC websites and look it up!)

Do you have any testimonials or references of local satisfied customers?

Are you a member of your state Mortgage Broker Association, or Association of Realtors?

Do you have any continuing education, higher education or special credentials in the mortgage or real estate field?

Have you or your company supported any local or national charities or non profit organizations or do any community services here in my town or county?

Ask your friends, relatives and co-workers if they have had any good experiences with their mortgage loan originator, and if so, would they refer them to you?

If your prospective loan person can answer these questions confidently and at least most of them in the affirmative, then you are probably dealing with a reputable company.

ONGOING FEATURE-

Play “Stump the Broker”

This is an ongoing opportunity to ask any real estate financing and general real estate related questions of THE REAL DEAL GUY, and try and stump him. He promises to answer every legitimate question, with no Bull Durham, hence the name REAL DEAL GUY. Are you ready to handle the Truth? No punches will be pulled, no wool pulled over your eyes either. If he is stumped, or if a question is outside his expertise, he will admit it.

Please no irrational or aimless ranting, but all issues are open for discussion-

Let’s have some fun with it-

THE REAL DEAL GUY