Saturday, December 02, 2006

My Lender Lied to Me

by Osman Parvez
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  I happened to check the Searchlight Crusade mortgage blog last night and found an article that relates to my post on option or "pick a pay" loans. It's about a borrower who refinanced his mortgage and was seemingly tricked into a toxic loan by his dodgy lender.

The borrower writes,

"I recently refinanced and the mortgage broker lied to me about many, many things. I was sold a negative amortization mortgage. The broker provided me a chart showing my payment schedule for 30 yrs; it showed my payment split between interest & principal. I was told that my rate was fixed for 5 yrs and that it would go up to as high as 9% after the 5 yr period. When the closing came and I inquired about the 9% highlights in the docs and the negative amortization disclosures he stated that they didn't apply to me or this loan. He pointed to the section of the doc that stated that my payments would be fixed for 5 years and that my interest rate would also be fixed for that 5 year period. After closing I received the docs from the lender which outlined the fact that I had 4 choices for payments and when I called for the explanation I almost died. The broker apparently didn't really understand the loan at all; he has now offered to refinance me without any fees...but I am supposedly stuck with the prepayment penalty."

Ouch.

Once again, be sure to use only a reputable lender, people. This borrower's experience is why I recommend you get referrals and ask mortgage brokers to compete for your business. You will get a low rate without unnecessary fees. At the closing table, double check the figures before you sign anything and make sure it matches your expectations.

As the author of Searchlight Crusade points out, you only need negative amortization disclosures on negative amortization loans. You can read the rest of the article HERE.

p.s. Should the borrower have known better? Maybe. PT Barnum said, "there's a sucker born every minute." Our goal is help you avoid being one.


Image: numberstumper


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The ideas and strategies described in this blog are the opinion of the writer and subject to business, economic, and competitive uncertainties.   We strongly recommend conducting rigorous due diligence and obtaining professional advice before buying or selling real estate. 

3 comments:

  1. It's a new paradigm, and everybody who doesn't buy, now, will be priced out forever. Anybody who does buy will be rewarded with a lifetime of riches, as their property will continue its 30% yearly price increase.

    Renters, and anybody born in a future generation, will not be able to afford a $10,000,000 starter home in 15 years. They will live in tent cities, and Hondas.

    This asset bubble is different than all of the others - it will never slow down, or pop. The gains are permanent.

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  2. Shopping for a loan is NOT THE ANSWER. When banks compete you lose.

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  3. Hi Anon,

    Spend a little time reading my blog and I think you'll find my position is anything BUT your "new paradigm." As I've repeatedly pointed out, in the most conservative scenarios for price appreciation, buyers typically need a minimum 5 year holding period to get ahead of renting.

    In any case, your comment reflects the widespread misperception that all real estate brokers are out to cheat, lie, and swindle. That we push people into homes they can't afford, irrespective of morality or the consequences to our community.

    Perhaps it's the low barriers to entry and bad apples in this business (particularly in lending). Certainly, some of the reputation is deserved.

    In any case, we're challenging those old stereotypes by working hard and adding value. We recently began a new approach to helping clients that we call "work sessions." During a work session, we spend several hours with a buyer or seller running numbers, looking at properties online together, and helping them develop a better, more informed strategy to buying or selling. Other ways we counter the misconception is by full disclosure of not only how/what commissions are paid but where the money goes and how it's split. Overall, it amounts to a significant effort at educating buyers and sellers, much of which works its way to this blog.

    -Osman

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