by Broderick
Perkins
When it comes to the
mortgage market's current woes -- mounting civil suits, stepped up
regulatory enforcement and imminent reform -- Randy Johnson doesn't
mince words.
With Loan-Wolf.com as a Web name befitting his outspoken approach, the
Newport Beach, CA mortgage broker says the mortgage industry's greatest
problem isn't lax regulatory enforcement or the need for reform.
It's mortgage mendacity.
With behavior ranging from the "Don't Ask, Don't Tell" brand of
lying-by-omission to outright predatory fraud, the home lending
industry employees too many charlatans, he said during an interview
last week when he was asked to share his thoughts on the current
mortgage industry brouhaha..
"I think that the most significant problem in the industry today is the
proliferation of liars. According to everyone I talk with in the
industry, more than 50 percent of loan officers routinely lie about
rates. Verbal rate quotes don't mean anything and are not binding,"
said Johnson, author of the favorably reviewed "How To Save Thousands
Of Dollars On Your Home Mortgage" ($14.95, John Wiley & Sons),
No. 4 on Amazon.com's mortgage book bestsellers' list.
"If you are going to get a good deal, you have to get honest
information," he says.
Among other federal steps to stem the tide of baiting and switching,
loan flipping, predatory lending, nondisclosure and other illegal
mortgage industry practices, U.S. Housing and Urban Development
Department secretary Mel Martinez has pledged this spring to issue
federal reform proposals for the 1974 Real Estate Settlement Procedures
Act (RESPA). RESPA is a federal law designed to protect consumers
against undisclosed mortgage costs, fees levied when no services are
rendered, kick-backs, or illegal referral fees and other practices the
law deems illegal.
But, in an atmosphere of rewriting regulations already designed to
protect consumers, how can consumers hope to get honest information?
Get smart,
said Johnson, when he was asked to share some tips to help consumers
overcome thet state of the mortgage market.
"This may come as a shock to you, but most people -- certainly more
than half -- make costly mistakes in the mortgage process. Their
mistakes are a direct result of a lack of preparation. They select a
loan that doesn't exactly meet their needs, or they choose the wrong
lender, or they lock in at the wrong time, or they choose the wrong
rate and fee option. These mistakes cause them to waste thousands of
dollars, and they don't even know it," Johnson said.
"The key to making good decisions -- avoiding mistakes -- is
education," he added.
In many cases, consumers are so intimidated by the mortgage maze they
don't make an effort to obtain information easily available from a wide
variety of sources from books like Johnson's to independent mortgage
Web sites. Mortgage borrowing blind faith is an oxymoron. Local housing
agencies, advocacy groups and consumer agencies either provide
counseling or can refer mortgage borrowers to sources of informative
aid.
Johnson also offered the following money-saving advice for mortgage
shoppers.
Get your credit report. Before
you shop for a loan, order your credit report and correct any
inaccuracies. Otherwise, the blemishes could push down your credit
score and push up your loan costs. If you are financially active,
practice safe credit. You should keep tabs on your credit report every
six months and at least once a year.
Don't rate shop by phone.
Instead choose a broker or lender you can trust. That
means getting referrals from family, friends, coworkers and others you
trust who've also recently closed a satisfactory mortgage deal. Get
several. Interview them. If you are buying a home, you are about to
invest in what could be your largest purchase ever and you need someone
you can trust.
"Find an honest lender and everything else will work out," Johnson says.
Demand to see the rate
sheet. "Getting the rate sheet shows whether he's telling
the truth. If he says 7 percent and one point and shows you a rate
sheet that says wholesale prices are 7 at par (with no points), he's
telling the truth (the one point is the borrower's cost). Otherwise,
rate shopping is just finding the biggest liar," says Johnson.
"What is the most frequent complaint about the mortgage business? 'He
quoted us these great rates, but when we went to sign loan documents,
they were different.' They weren't different, he was just finally
forced to tell the truth," Johnson said.
Be prepared to walk.
"If he refuses to show you the rate sheet, get up and leave. When you
find a broker who will work with you, negotiate their commission(the
points) and any other fees on top of the money source's rates and fees.
Get an agreement in writing that they will not charge you more than the
agreed upon commission," Johnson said. The agreement should cover all
loan costs and terms.
Reconsider your reason
for refinancing. Lowering the cost of the total amount of
interest paid over the life of a mortgage, not lowering your monthly
payments, is the most cost-efficient benefit from refinancing. If you
are more than five years into your current loan, even if you lower your
interest rate 1 percent and select another 30 year loan, you could owe
more total interest than you would have owed had you kept the old loan
with only 25 years left.
The popular 30-year, fixed-rate loan isn't always the best loan. The
extra 0.50 percent on a 30 year mortgage, compared to a 15-year
mortgage, costs $1,000 a year on a $200,000 loan. As soon as you can
afford the higher monthly payment, get a 15- or 20-year loan.
Zero-point loans are
sucker loans. "They are hugely profitable for lenders,
which is why they are willing to subsidize your loan to the tune of
$2,000. The 'slightly higher' rate can add up to an extra $15,000 over
the typical eight-year life of a mortgage. If you are going to be in
your house more than a few years, pay points to buy down the rate. You
keep the $15,000," Johnson says.
A mortgage is like a
credit card. The worst credit card debt management plan
ever is paying the minimum monthly payment each month. A 30-year loan's
amortization isn't much different. Barring prepayment penalties your
contract could demand, pay more than the monthly payment whenever you
can. At current rates, an extra $10 every month on a $200,000 loan can
save you more than $8,000 over the life of a 30-year mortgage.