Borrower beware: Abusive lenders are out there
By Jeff Lazerson
What’s up with mortgage rates? Jeff Lazerson of Mortgage Grader in Laguna Niguel gives us his take.
Rate news summary
From Freddie Mac’s weekly survey: The 30-year fixed rate averaged 3.94 percent, unchanged from last week. The 15-year fixed averaged 3.27 percent, two basis points worse than last week’s 3.25 percent.
The Mortgage Bankers Association reported a 2.6 percent decrease in loan application volume from the previous week.
Bottom line: Assuming a borrower gets the average 30-year fixed rate on a conforming $424,100 loan, last year’s rate of 3.54 percent and payment of $1,914 was $96 less than this week’s payment of $2,010.
What I see: Locally, well-qualified borrowers can get the following fixed-rate mortgages at a one point cost: A 15-year at 2.875 percent, a 30-year at 3.625 percent, a 15-year agency high-balance ($424,100 to $636,150) at 3.125 percent, a 30-year agency high-balance at 3.75 percent, a 15-year jumbo (over $636,150) at 3.625 percent and a 30-year jumbo at 3.875 percent.
What I think: When you are in the middle of a real estate transaction, you are asked to comply with the whims and wishes of underwriters and others in the real estate settlement process. The time-sensitive nature of the transaction process can make one vulnerable to abusive practices.
Here are some recent examples that might mortify you:
1. A couple, engaged to be married, were in escrow to purchase their first home using Federal Housing Administration financing. As a condition of funding the loan, the underwriter required that the couple be married prior to funding.
Because the soon-to-be newlyweds were too afraid of getting denied and losing out on the property (if they complained), they got married earlier than planned. The lender subsequently funded the loan.
Lenders cannot discriminate against borrowers for the makeup of your family, known as familial status. In this case, a simple call to the U.S. Department of Housing (FHA police) with the FHA assigned property case number would have cleared this up in about 10 seconds.
2. A self-employed borrower of mine was approved for a loan. Signed loan documents were back with the lender pending loan funding. The lender then required the borrower to provide significantly more financial information. The lender threatened me with cancellation if the borrower didn’t comply. My frustrated, angry client complied and the loan funded.
This was embarrassing for me, for sure. This was sloppy and unethical behavior on the lender’s part. In this case, it was easier for my client to comply than start over elsewhere.
3. A recently married woman is purchasing a home, sole and separate from her husband. The day before funding, the title insurer demanded that our buyer pay her husband’s $22,000 California tax lien.
Unless he’s going on title, his lien cannot attach to her separate property. Threatening to move the settlement services to another provider was the way to make the title company rethink its mistake. Borrower closed without paying her husband’s tax lien.
4. A borrower with perfect credit had a three-month employment gap due to hospitalization. The lender approved the loan on the condition the borrower’s doctor write a letter stating that the borrower “would not get ill again.”
Cooler heads prevailed and the underwriting manager removed the condition.
5. Foreign-born borrowers with foreign-sounding names were required to provide a certificate of citizenship since their Social Security numbers were issued after they turned 18. Never mind that they both have U.S. passports, and they both checked the loan application box affirming U.S. Citizenship.
The underwriting manager removed the condition. The lender’s sales manager called the borrowers, apologized and waived the underwriting fee.
Don’t assume everyone plays by the rules. Abusive practices are out there.
If something doesn’t seem right, request an explanation. Advocate for yourself. Make sure ahead of time that those industry professionals you hire are in your corner.
" If you prefer to select one loan provider rather than spend time shopping, Mortgage Grader looks like a good choice" - Washington Posts
Website May Lead to Fairer Loans
"It's a noble proposition; getting folks a square deal on a mortgage using the ubiquity of the internet." -Jonathan Lansner, Business Columnist
"My post was about the difficulties inherent in getting consumers to choose this superior model for getting financial advice."
- Justin Fox, Business and Economics Columnist