You’ve got to like an organization that has the words "fair mortgage" in it. And you especially have to appreciate them when they introduce a handy little software program that lets you know you are getting a fair price when you apply for a mortgage.
The Fair Mortgage Collaborative is a nonprofit organization based in New York that attempts to accomplish three important home finance goals: educate consumers about predatory lending practices; help consumers avoid predatory lenders and brokers; and enable consumers to obtain safe, fairly priced loans.
Working with a group of other nonprofits such as The Ford Foundation, Neighborhood Housing Services of America, and The Center for Responsible Lending, the Fair Mortgage Collaborative created the Fair and Safe Standards List: principles that lenders and brokers should follow, the practices they should employ when making loans, and the products that they should or should not offer.
"Our job is to provide consumers with very good information about mortgage loans to avoid predatory or improperly priced loans," explains Howard Banker, executive director of the Fair Mortgage Collaborative. "Our approach is that the consumer should receive a loan that he or she is eligible for and that it is properly priced, whatever the borrower’s credit risk."
While the Fair and Safe Standards List is obviously directed toward the lender, it doesn’t mean the Fair Mortgage Collaborative hasn’t been thinking about ways to directly help the consumer. It has — and the initial product for the potential mortgage borrower is a simple little "tool" called the Fair Mortgage Cost Check.
The Cost Check program allows homebuyers to quickly and privately determine if mortgage pricing — including interest rates and closing costs — is significantly out of line with the local market, which is a long-winded way of saying Cost Check lets you know if your mortgage lender has been inflating costs.
"A lot of the predatory stuff that was happening in the country was with the (mortgage) brokers," says Banker. "Sometimes a broker would bill four points, which is gigantic. If challenged, they might say, ‘Oh, it is really only two points’ and they would cover the other two points by making your interest rate higher. A lot of consumers didn’t even know how much they were paying their brokers."
Consumers can click www.fairloancertification.com to access the Fair Mortgage Cost Check. On the opening page is a chart with the current national average rates for the most common mortgages being offered today. In March, I checked out the Fair Mortgage Cost Check and I saw a 30-year, fixed-rate, conforming loan, which carried an average interest rate of 4.82 percent, points at 1.01 and the total closing cost average of $4,578.82.
Just below that table, still on the left of the opening page, was a line that read: "Search for Local Rates." Tapping on those words calls up another webpage that contains a ZIP code search. I wrote in the ZIP code for my postal section of Mesa, Ariz., and the same table appeared but with local costs.
For a 30-year, fixed-rate, conforming loan, the interest rate dropped to 4.85 percent with the points at 0.85 and total closing cost looking good at $4,341.50. This was a surprise to me: local pricing was much cheaper than the national average! …CONTINUED
Let’s say I was looking to buy another home in Mesa and the mortgage lender I chose was quoting me an interest rate of 5.25 percent and points of 1.5. By checking those numbers against the searchable chart at www.fairloancertification.com, I would quickly see that my lender’s costs were out of line with the average closing expenses in my area.
Using the same ZIP code (or city or state) search mechanism, the website also provides a list of Mortgage Collaborative certified lenders.
So how did the cost check tool come about? I asked Banker.
"When we certified lenders against our standards, we actually get all the RESPA (Real Estate Settlement Procedures Act) compliant data on all the mortgage loans lenders’ lock and close," says Banker.
"We purchase the information, pricing all the different kinds of loans out there down to the ZIP code level — and that pricing changes daily. We then figured this would be a good thing for consumers to know, so we decided to post it on our site."
As a consumer, if you want to buy a home in Akron, Anchorage or Albuquerque, the rate won’t be the same in all those places.
"The average national rate is very interesting," says Banker, "but it is not what you are going to pay in your location. Lenders charge differently in different geographies. Cost Check shows you what your rate is, depending on where you live. And, because we get the daily pricing changes, it’s accurate."
Cost Check is a third-party validation to let consumers know that the lenders are "being fair and straight up" with the borrower about the loan, says Jeff Lazerson, president of Mortgage Grader in Laguna Nigel, Calif., whose job it is to manage the certification process for the Fair Market Collaborative. In short, Mortgage Grader is Fair Market’s technology manager.
"What keeps mortgage shoppers up at night is an overwhelming sense of confusion, fear and general mistrust of lenders," Lazerson noted at the time of the Cost Check’s launch. "What Fair Market is doing is giving consumers a way to cut through all that confusion and make better and informed decisions."
Lazerson had been working on different projects for the Ford Foundation when he got invited to a meeting concerning fair and safe practices for the mortgage industry.
This led to his work with the Fair Market Collaborative. An ex-mortgage banker, Lazerson had already been tapping the power of the Internet to help consumers get a fair deal in the mortgage process. His website, www.mortgagegrader.com, functions as a kind of "upfront consumer loan approval and pricing tool."
Mortgage Grader has also been working to get a patent for what Lazerson calls a mortgage pricing engine for consumers. "It will be a way for consumers to find the best deal for themselves," he says, "like an Orbitz for mortgages."
Steve Bergsman is a freelance writer in Arizona and author of several books, including "After the Fall: Opportunities and Strategies for Real Estate Investing in the Coming Decade."
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