The only people who should read “Mortgage Confidential” by mortgage broker David Reed are home buyers who want to avoid unnecessary mortgage fees, homeowners who want to refinance and save money, and real estate agents looking out for the best interests of their buyers. All others should avoid reading this superb new book because you will be shocked by what goes on in the home-loan industry.
The author must need 24-hour security guards because he reveals the dirty tricks some mortgage lenders use to secretly increase their profits at the expense of borrowers.
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For example, Reed doesn’t hesitate to expose the unnecessary “junk fees,” such as administrative fee, processing fee, origination fee, documentation fee, and other creative titles, which are pure lender profits. He explains a junk fee is a lender charge that is not for a legitimate specific service, such as an appraisal, credit report, title insurance or survey.
David Reed is a mortgage broker who is clearly on the side of borrowers rather than the actual lenders. He has many years of experience as a mortgage broker so he knows how borrowers can get the best terms.
To illustrate, the author suggests borrowers use and understand lender terms such as 1003 (number of the loan application most lenders use), prequalification (worthless, Reed says), preapproval (also worthless), approved with conditions (what borrowers should obtain before shopping for a home), clear to close (lender is ready to fund), and funding (lender wires cash to the closing settlement).
Being an experienced mortgage broker, Reed explains how automated mortgage approvals work and why borrowers should leave blanks on their loan applications rather than supply unneeded information, which lenders then must verify. He also explains the important “front ratio” or “housing ratio” and the so-called “back end” total-debt-payment-to-earnings ratio. After studying this valuable book, readers will know as much or more than most mortgage brokers know.
Especially interesting are the dirty tricks some mortgage lenders use to make their loans seem the lowest cost. Reed explains how they “low ball” closing costs by estimating abnormally small fees. Then, when the actual lender imposes higher costs at the loan closing, the borrower has little choice but to sign the papers or walk away and lose the property.
Another dirty trick Reed exposes is the interest rate “lock-in” scam. He reveals how some dishonest mortgage brokers tell borrowers their quoted interest rate is locked in even though the mortgage broker is betting rates will drop and he can increase his loan profit. If rates go up and the broker failed to lock in the interest rate, there’s little the borrower can do when the broker says “sorry” but your rate wasn’t locked in.
An interesting trick that I didn’t know about is how mortgage lenders can get credit report errors corrected extra fast when necessary. The author shares how sales reps from the credit bureaus can speed corrections and FICO (Fair Isaac Corp.) improvements faster than can the borrower dealing direct with the credit bureaus.
This “tell all” book is even better than Reed’s first book “Mortgages 101.” Especially profitable reading is the section about why it usually doesn’t pay for the borrower to pay any loan fee points. One point equals 1 percent of the amount borrowed. The author says each one-point loan fee should result in a one-fourth percent mortgage-interest-rate reduction.
Although Reed doesn’t discourage paying loan points when buying a home (because home acquisition loan points are tax-deductible interest), he strongly warns against paying loan points when refinancing (because any loan points paid other than for a home acquisition mortgage can only be deducted over the life of the mortgage).
Chapter topics include “Where Mortgage Loans Really Come From”; “The Mortgage Loan Process”; “Risk Elements”; “Closing Costs”; “Interest Rates”; “Credit”; “Loan Choices”; “Refinancing”; and “Buying and Building New.”
This is one of the very few real estate books that cannot be recommended too highly. It is easy to understand, but, more importantly, it includes mortgage secrets not revealed elsewhere. On my scale of one to 10, this outstanding book rates an off-the-chart 12.
“Mortgage Confidential,” by David Reed (AMACOM Publishing, New York), 2007, $16.95, 199 pages; available in stock or by special order at local bookstores, public libraries and www.Amazon.com.
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