Q: I read in the newspaper that a particular bank had been targeting bad loans at members of my ethnic community. How do I know if my bank is swindling me, before I sign on the dotted line?
A: In the aftermath of the foreclosure, housing market, mortgage or whatever you want to call the real estate corner of the economic crisis, there have been lots of investigations and findings about various banks targeting ethnic minorities with subprime mortgages. While your right as an American is to vote with your dollars, I would encourage you to avoid jumping to conclusions about an entire institution or industry being good or evil on the basis of blame-era spin and hindsight applied to marketing strategies and campaigns that were, undoubtedly, thought of at the time as promoting and enabling homeownership amongst people who hadn’t always been given a fair shot at the American Dream.
Mindset Management
I hear a lot of buyers and homeowners anthropomorphize the mortgage banks, as though there really is an evil, old, shriveled-up man in the upstairs office rubbing his hands together and ghoulishly laughing as he "swindles" the proletariat.
I went upstairs once. He wasn’t there.
Seriously, banks are institutions. Organizations. That means there are as many personalities and agendas in them as there are individual people. That also means that, by and large, the banks as organizations are really not out to get you, the consumer. On the flip side, though, neither do they necessarily provide overwhelming care for your interests.
With all that said, there are at least two, maybe three individuals involved in your mortgage transaction whose job is to watch out for your interests. You. Your mortgage broker, if you use one. (And sometimes your real estate agent, to the extent that they are involved in your mortgage matters — some get very involved, while others stay entirely out of it.)
If you have grave concerns about being taken advantage of by the bank, or you are inexperienced in mortgage matters, or you simply want to have someone with mortgage knowledge and connections in your corner, I’d advise you to work with a reputable mortgage broker that you find by referral, rather than someone who sends you a postcard or the gal sitting at the loan desk when you walk into your bank’s branch off the street.
Need-to-Knows
The swindling you can hedge against by using a mortgage broker comes in two flavors. First, you want to know that you are getting the best interest rate and loan terms available, based on your qualifications. You also want to be sure you’re not overpaying in terms of the origination fee and other closing costs you’ll pay to get the loan in the first place.
A reputable mortgage broker will serve as your swindle detector and can also be the difference between successfully obtaining a mortgage or not. The active ones can ask you a couple of questions about your income, assets and financial plans; review your credit report; and almost instantly know which banks’ loan programs are a good fit and likely to offer you the best rate and terms. Mortgage brokers have access to hundreds of different banks and loan programs — many of which the average consumer would never even be aware — not just the few you can walk into off the street. So they can and do "shop" multiple banks on your behalf, by comparing their interest rates and terms to find the most competitive programs to offer their clients. …CONTINUED
Active, reputable mortgage brokers also prioritize loan programs that are feasible to close in a normal escrow period. This is key, as many purchase contracts in today’s market impose per diem fees on the buyer for closing late, and the complaint I hear most often from borrowers working directly with a bank is that those loans take much longer to close than brokered mortgages. A mortgage broker will shop multiple banks’ programs to find the best and most user-friendly one for you, and will also chauffeur your loan through the bank’s application and underwriting processes — usually at the same cost that you would have had to pay a bank’s loan representative.
Experienced mortgage brokers with a strong referral base want to keep generating their business by referral. As such, they feel accountable to the person who referred you to them, and are less likely to rip you off. They are also aware that you might be getting quotes from other mortgage brokers — the accountability and the competition also motivates them to find you the best deal out there.
On the flip side, be aware that, as with any industry, there are definitely some rotten apples in the mortgage broker barrel. There are folks who guide borrowers into loan programs based on which program will generate the highest commission for them, rather than which program is in the best interests of you, the borrower. Again, working with someone who was referred by a friend, family member or even a local Realtor is your best hedge against getting ripped off.
Also, be aware that at least one major bank, Bank of America, no longer works with mortgage brokers at all. My clients who have recently compared loan estimates from no-broker banks and brokers have virtually all elected to go with brokered loans, but you should at least be aware that there are some loan programs that are unavailable through brokers. Also, if you are buying a new home and the builder is offering incentives for working with their lender, or if you are attempting to obtain below-market-rate financing through your employer or a government program, it might make financial sense to work with the builder’s or program’s bank loan rep, rather than a mortgage broker of your own choosing.
Action Plan
1. Ask your friends and family members for a referral to a mortgage broker you really love.
2. Provide them with your financials and get a good faith estimate listing the rate, terms, mortgage payment and loan type for the best loan they can get you.
3. If they are charging you more than about 2 percent to originate your loan — in total loan-related fees and costs, but not including taxes, title insurance and escrow fees — consider getting a second estimate from another broker, just to be sure you’re not overpaying for the loan.
Tara-Nicholle Nelson is author of "The Savvy Woman’s Homebuying Handbook" and "Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions." Ask her a real estate question online or visit her Web site, www.rethinkrealestate.com.
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