Q “I’m looking into refinancing my home, and I have a mortgage broker in mind.
How do I check out a lender or mortgage broker to find out if they are legitimate or have created problems?”
W.P., Lynnwood
A First, in the interest of full disclosure, as most readers of this column know, I own a mortgage company. So I am very familiar with that is going on in the mortgage industry.
Because of rising interest rates this year, the long refinance boom is now over. That has caused many mortgage companies to lay off employees, and several companies have even gone out of business. One positive impact of the mortgage industry downturn is that many of the “quick-buck artists” have been forced out of the business. But the flip side of the downturn is that many mortgage companies are now scrambling desperately to survive in an environment of ever decreasing loan volumes.
This has resulted in some questionable advertising tactics, such as promising to refinance your mortgage with a 2 percent interest rate. What these mortgage companies fail to explain in their advertising, is that the 2 percent interest rate is a teaser rate for an adjustable rate mortgage, and that low rate typically lasts for only one to three months. After that, the interest rate increases to the current market rate (about 4.75 percent today) and the rate changes every month with the financial markets from that point forward. This is just one of the tricks of the trade that some mortgage companies are using to try to keep up their loan volume.
So how do you find a mortgage company that you can trust? That’s a tough question because few people have the time to thoroughly research the mortgage market. Most depend on tried-and-true methods such as asking for referrals from friends and experienced real estate agents who deal with mortgage lenders on a daily basis. That’s probably the best way to choose a mortgage company.
However, it’s difficult for an outsider to know whether a company is trustworthy and financially sound. Many mortgage companies have had consumer complaints filed against them at the state Department of Financial Institutions. To find out if there have been any consumer complaints filed against a mortgage company that you are considering, you can call the department at 360-902-8700 and ask to speak to the consumer services division. The only catch is that its staff cannot comment on any mortgage company currently in an open investigation. That may seem like a strange policy, but the department has to weigh the public’s right to know against the potential liability of damaging a mortgage broker’s reputation before a complaint has been proved valid.
The best defense is to become an educated consumer. The more you shop, the more you’ll learn about the mortgage process. It is a complicated business and there are many different ways to itemize the loan expenses. As a general rule, banks tend to charge more points and less closing costs than mortgage companies. But concentrate on the bottom line – the total cost of the loan.
For example, which of the following lender quotes offers you the best deal on a $200,000 fixed-rate mortgage at the exact same interest rate?
1. One point and $500 in “closing costs.”
2. One-half point and $1,500 in closing costs.
3. Zero points and $2,500 in closing costs.
Answer: They are all exactly the same.
In the example above, total cost of the loan would be $2,500 at all three lenders. You can see how it is easy to get confused if you focus on only one part of the equation, such as the closing costs. Don’t get caught up in the semantics of loan origination fees, discount points, etc. Ask for a written good faith estimate from every lender you are considering and look at the total cost of the loan in dollars and cents, it doesn’t matter what they call the fees. Then you can truly compare apples to apples.
The mortgage industry is really a people business built on trust. When you talk to a loan officer, ask yourself if he or she seems knowledgeable about the loan products and the application approval process. Do you feel confident that he or she will deliver on promises made? Many mortgage problems are the result of ignorance and incompetence rather than outright fraud or deception.
When comparing interest rates, it’s crucial to remember that all quotes are meaningless until you lock in your rate. If you are floating with the market, a few unscrupulous loan officers may quote a very low interest rate on the phone to get you in the door to take your loan application – knowing full well that they won’t have to deliver on the promised rate. When you eventually decide to lock in, you get a much higher interest rate and the loan officer’s heartfelt apology that, “I’m sorry, but rates have gone up.”
Fortunately, these sharks are in the minority, but they are out there, so be wary. Trust your instincts. If it sounds too good to be true, it probably is.
Mail questions to Steve Tytler, The Herald, P.O. Box 930, Everett, WA 98206. Fax questions to Tytler at 425-339-3435 or e-mail economy@heraldnet.com.
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