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Americans Get Ripped Off on Mortgage Loans
You might think that Americans would have learned over the past few years that home mortgages can be dangerous products, to be approached warily, only after careful study and consideration. You would be wrong.
Americans spend twice as much time shopping for cars than they do for home loans, Zillow.com reported Thursday. An online survey of 2,729 adults commissioned by Zillow found that on average they spent five hours choosing a mortgage, compared with 10 hours for a car and four hours for a computer. Nearly a third of the respondents devoted two hours or less to choosing a mortgage.
“Mortgages continue to be something that most people don’t want to spend time thinking about,” said Stan Humphries, chief economist for Zillow, a real estate information firm.
Of course, only an economist could find that even faintly surprising. Most people find it fun to look at shiny new cars and take them for test drives. Vroom, vroom! Reading through the fine print of loan contracts and trying to figure out what would be a fair price for title insurance and an appraisal–well, slightly less diverting.
Even if you do want to shop wisely for a mortgage, that isn’t easy to do. You can’t just pick the lowest rate because the lender offering the lowest rate might have the highest fees. And one lender’s loan doesn’t necessarily have the same terms as the similar-sounding loan from the bank or broker next door. You need to look at a bunch of factors, and at the end of it you won’t necessarily know which combination is best.
Moreover, you might be told on Monday morning that your rate will be 5%. When you come back to lock in the next morning, however, the lender may tell you that the market has moved (as it does constantly) and now your rate is 5.25%. Do you have time to go back to all the other lenders and check what they’re charging today? Or are you so eager to refinance or seal your home purchase that you’ll just sign on the dotted line?
In fact, many lazybones simply go to one lender–the one recommended by a friend, Realtor or home builder–rather than doing their own research.
At the beginning of this year, new federal rules mandated a standard three-page “good faith estimate” of mortgage fees and terms that is supposed to make it easier for consumers to compare offerings of different lenders. Opinions are mixed on whether this new form is helpful or confusing.
Lenders, for their part, always say they are eager to improve “financial literacy” so consumers can make better choices. But do they really want to make it easy for consumers to shop for mortgages? I’m skeptical. If consumers could easily compare one lender’s terms with another’s, profit margins on home mortgages would go down.
New rule says banks must prove ownership
Foreclosure filings have backed off this year compared to 2009, but it may not be a brightening economy causing the decline.
A new Florida Supreme Court rule requires lenders to verify they are the actual owners of a home before making the initial case for foreclosure.
Show me the “note,” in other words.
The problem is the notes — legal promises from borrowers to repay a debt — have been sold and resold, bundled into securities, scanned into computers, sealed in unknown vaults and lost in various other ways as homes got caught up in the puzzling markets of the real estate boom.
“The original note is something very significant, and they just seem to have lost thousands of them,” said Boca Raton attorney Marlyn Wiener, who handles real estate cases. “Nobody knows where the stuff is.”
The new rule was approved in February with the intention of unclogging the foreclosure courts, which have an estimated statewide backlog of 500,000 cases. It also gives judges power to sanction plaintiffs who make false accusations on the ownership of notes, or missing notes.
Law firms handling the foreclosure overload, sometimes called foreclosure mills, have routinely filed a “lost note” claim with the original default notice, regardless of whether they looked for the note, said Miami-Dade Circuit Court Judge Jennifer Bailey.
The legal move gives lenders a statutory out if the original note truly can’t be located. When asked what efforts were made to find the note, however, such excuses as “searched file cabinet” and “searched fire proof safe” have appeared on several court records.
“It was very confusing. How can you foreclose on the note if the note is lost?” Bailey said. “The judges would be trying to track the note and they’re saying they own it, but don’t have it and don’t know where it is.”
But if a borrower didn’t protest the foreclosure, the cases often sailed through.
Judges were also finding, according to a statewide foreclosure task force that recommended the verification rule, that two different lenders would sometimes file suit on the same note at the same time because it wasn’t clear who the true owner was.
Defense attorneys, too, got keyed in on the lost note strategy, challenging the veracity of a lender’s claim to a home, and further stalling the process.
“There was just an abuse of the lost note statute,” said Scott Hast, an attorney with LaBovick & LaBovick, which has offices in Jupiter and West Palm Beach.
Hast said at least half of his foreclosure defense cases include lender pleas of lost notes. He almost always asks for evidence of the original document.
“They can say it’s a stalling tactic, but how can I not defend my client and seek out every route in his defense?” Hast said.
“Now the courts are saying you have to do your due diligence before filing,” he added.
Anthony DiMarco, executive vice president for government affairs for the Florida Bankers Association, said he doesn’t believe the new rule is causing the slowdown.
He attributes it more to an increase in loan modification workouts between borrowers and banks, and banks’ increased willingness to approve short sales.
It is another hoop for banks to jump through, he acknowledged, but something that was supposed to be happening all along.
Bailey, who was on the foreclosure task force, said the rule wasn’t needed before the real estate boom when home loans were more straightforward and foreclosures fewer.
The Truth About “No Closing Cost” Loans
You may have heard recently that “people are smart.“ Of course, you probably didn’t need a silly commercial to tell you that. But since its also true that some people are smarter than others, it’s important to also mention the obvious:
The truth being that “No Closing Cost” mortgage advertising is so flagrantly misleading that state regulators in California have actually outlawed the use of such phrases in any homeloan advertising.
The reason for this is that these lenders are not truly “waiving” your closing costs at all- instead, what they’re offering to do is “offset“ them. They do this by receiving a kickback income from giving you a much higher than market interest rate; this kickback is also known as Yield Spread Premium, or YSP.
Worse yet, if the mortgage company is a correspondent lender or bank, like Ditech, they don’t even have to disclose this sweet little compensation; a reward that you end up paying for many times over throughout the life of the loan.
No Closing costs loans can be good for short term solutions, where you would’ve paid more in closing costs than in additional interest over the time you plan on being in the mortgage for. For example, if closing costs are $4k and if your “no closing cost” payment is only $100/mo more than the “full closing cost” payment, then if you spend 40 months or less in that mortgage (40 months x $100 = $4k in closing costs you avoided) it’d be a better option to go for the No Closing cost option.
Consumers need to work with a mortgage agent that works with you, finds out about what your current and future intentions are, and works up different options and give you a choice in what mortgage is best for you. A no closing cost loan may be your best option for some circumstances, but taking on a mortgage that has closing costs could be your best option for other circumstances. Mortgages are not a “one size fits all type of service. Each mortgage should be planned and provided for each individual consumer and best fit their current and future needs. Therefore, be hesitant about doing a no cost mortgage or whenever you see a no cost mortgage advertised because it may not be the best loan for you and may end up costing you much more money overall.
The No Closing Cost label is often missapplied by advertisers who in fact do charge closing costs, whether hidden in the rate or explixitly billed to you. In fact, a better way to look at No Closing Cost loan offers is to remember that they are generally referring to “No Out of Pocket” or “No Up Front” closing costs.
As with all things in life…there is no free lunch. Read the fine print when you get a no closing cost mortgage. You will find after talking with your mortgage broker that there maybe a much better deal waiting for you in the wholesale lender market.
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