|Your only unbiased source for mortgage and credit information. I don't take applications or "harvest leads." I help people of all credit types avoid ripoffs and save money - since 1999. -- Carolyn Warren|
Common Mortgage Rip-Offs and
True Stories that Could Happen to You
How George Got Bilked $2,700
When I was a new loan officer working for a well-known national lender that advertises extensively, I saw a customer I'll call George get bilked $2,700, and he never knew it. Here is what happened...
George was doing a cash out refinance to make some home improvements. His loan amount was $135,000, and he was paying three points (3 percent of the loan amount). He was taking a non-conforming loan designed for people with damaged credit. People with excellent credit typically pay one point, so in a worse case scenario, George should have to pay double, or two points, but he was being charged triple. Then it got worse.
When it came time to sign, George asked his loan officer if he could get a little more cash out. "Yes," she said, "and that'll be an additional one point."
She swiftly raised the loan amount to give him the extra cash and then slapped on an additional $1,350 to the loan origination fee. So now George paid double what he should have paid in a worse case scenario: $5,400! In addition, he paid $995 in meaningless junk fees, which he never bothered to challenge.
When asked later how she was able to jack up his fees that way, she smiled and replied, "He wasn't paying attention." Why did she do it? Because it doubled her commission. Greed, pure and simple.
The Best-Kept Secret Lenders Don’t Want You to Know!
Many secrets are told over lunch. Casual comments, candid confessions, things that would never be said to an outsider. Little things like slipping forty bucks to the gal who locks in interest rates. Or big things like making forty grand off of one deal.
This particular day, I was dining with a loan officer at Michael’s Broiler on the 18th floor overlooking Lake Washington and the Seattle skyline.
“Forty grand. That’s amazing,” I said, cutting another piece of my filet mignon. “How did you do that?”
He tapped his linen napkin to his lips and smiled proudly. He told me what he did.
“Aha,” I responded. Perhaps my eyebrows raised a tad, but nothing more. I understood perfectly. He had sold his client an adjustable rate loan that had the interest rate of a thirty-year fixed rate loan. By selling him a rate significantly over par, he pocketed a big back-end commission from the wholesale lender.
“Did you broker out the loan?” I asked this, because I wanted to know if his client, the home owner, had any idea how rich his loan officer was getting off him.
“I did it ‘in house,’” he said this matter-of-factly.
“Even better.” He had a legal loophole for not revealing his windfall to the client. A windfall his client would pay for each and every month for the life of his loan.
My lunch companion agreed, “That’s the beauty of correspondent lending. You don’t have to disclose your YSP (Yield Spread Premium).” He finished up his mashed potatoes and expressed his pleasure about the absence of garlic.
“How long did the loan take to close?” I asked.
“Three weeks. And I had four other loans last month. But this month I plan to do more.”
Our lunch was almost over, so I had one last question. “How long have you been in the mortgage business?”
“Two years. Two more and I expect to retire,” he boasted.
I mentally did the math and figured he was right. Four years of charging clients for secret back-end commissions that big could net a loan officer enough to quit the business and get on with perfecting his game of golf.
Unfortunately, this is not an uncommon story. I know from years of personal experience that this kind of price gouging is rampant in the mortgage industry. Charging a higher interest rate than par is just one way for loan officers to collect extra pay. There are many others, and they're all exposed, plain and clear, in the book you can't afford to miss, Mortgage Ripoffs and Money Savers.