Mortgage Loan Lending Tricks

When mortgage rates inch down and hit lows, Lenders are swamped with new refinance and home purchase mortgage business.

The opportunity to refinance a current mortgage and save is good news, but for inexperienced refinance applicants who don't watch their step, a refi-boom can bust.

Banks, mortgage lenders and brokers can all mislead and take advantage of buyers using any number of tricks up their sleeve -- bogus interest rates over the telephone to slipping extra costs into the mortgage loans. To avoid these trip-ups posed by the confusing mortgage process itself, buyers and refinance home owners have turned to the internet to brush up on their knowledge.

Mortgage tricks and trip-ups
In a refinance market, you have to be careful because a lot of new companies open up in the market, a lot of rookie originators go into business that are not experienced. Refinancing or buying a home is usually the largest transaction a person is going to make in their lives and you don't want to be the guinea pig.

There's a range of tricks that get played and they're pretty broad, from fairly benign stuff to outright fraud. Problems can pop up long before a borrower fills out any paperwork. Indeed, just finding out how much a mortgage costs can be confusing.

All mortgage lenders and brokers aren't out to fleece customers with the complexity of the loan process. Many lender tricks don't rise to the level of "predatory lending" either. Nevertheless, they can cost borrowers time and money, and guarding against them becomes even more important when interest rates are low.

Be as specific as possible
Many potential customers simply call lenders up and ask, "What's your interest rate?" But they fail to indicate what kind of mortgage they need, how many discount points they're willing to pay, how long the interest rate is good for or anything else. Borrowers have to specify all of these things or lenders can pretty much say whatever they want, then provide different figures when they come in and blame the lack of specificity.

A loan with a lock period of 10 days, for instance, has a lower interest rate than one that can lock in for 30 days. Most borrowers opt for loans with longer locks because they need more than two weeks to close. But loan officers sometimes quote rates on their shortest-lock loans over the phone or in print just to sound low, knowing full well that many callers will never be able to obtain those loans within the lock period. Mortgage companies and bankers can provide rates that include several points to look better, even though many customers either can't or don't want to put down several thousand extra dollars at closing.

In most of the newspapers, once a week or more, they'll have a list of interest rates by lender. Sometimes, you'll find the rates they put in the paper are rates that are not available. They low ball their interest rate. When you come in, they'll tell you the mortgage market has moved and the rates are now...

Figure in the loan fees
Borrowers often forget to ask about fees, and don't compare mortgage company lenders based on those costs. That allows companies to pad their bottom lines by adding "document preparation fees," "underwriting fees" and other miscellaneous charges to the loan at closing. Lenders aren't supposed to control fees for services provided by third parties, such as title searches and appraisals. But they can adjust their own fees, so it never hurts to negotiate.

Mortgage lending is a competitive business, but if borrowers do their homework, they could end up saving a lot of money.

Don't believe everything you read
Consumers need to watch out for advertising tricks, too. Companies have been plugging "no cost" refinance and purchase loans, but the tagline really means "no out-of-pocket costs at closing." Borrowers pay higher interest rates on these mortgages and lenders use the extra money to pay the costs themselves.

The annual percentage rate, or APR, found in advertisements can be misleading as well. Mortgage lenders don't always include all the fees they charge in the calculation that determines APR, so customers who use that figure to shop rather than an itemized breakdown of rates, points and fees may end up comparing apples to oranges.

Of course, it's difficult for borrowers to compare fees when they don't know what they are. By law, lenders and brokers don't have to give what's called the Good Faith Estimate document to customers until three days after they apply. But there's nothing preventing shoppers from asking for it before committing to anything. Reputable lenders and brokers will provide one.

Know your credit score
After borrowers apply and have their credit scores pulled by their lenders, they should ask for those too. Credit scores often dictate whether borrowers get loans and how much they have to pay for them. Borrowers who obtain their scores can get rate quotes tailored to them, rather than receive quotes that may apply only to borrowers with better or worse credit.

Last-minute maneuvers
Closer to closing, borrowers also have to watch out for counteroffers from their current mortgage services or lenders. When borrowers refinance their loans, their new lenders request "payoff letters" from their current lenders. These letters spell out exactly how much the current lenders are entitled to at closing and are often the only indication that a borrower is refinancing the loan.

To avoid losing customers, lenders who are about to get the boot sometimes swoop in and offer to lower their borrowers' interest rates or refinance them into new loans themselves. While the offers can be competitive, they aren't always so. Plus, they usually come very late in the process. Borrowers who accept them can end up having to forfeit application fees or other monies to the lenders they planned on using.

By learning about all of these miscellaneous traps, consumers can take advantage of today's lower rates and refinance without worrying about being taken for a ride. After all, experts say, education and preparation is the best defense against shady lending practices.

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