Predatory lending is back (did it ever go away?)
Recently, a client I’ve been working with on refinancing walked into my office with a mailer from a mortgage company. My client wanted me to beat the rate that the company was offering:
“Dear Borrower”
Regarding your existing home loan with us, we are currently offering an exclusive program to refinance your existing loan. Features of this program offer significant savings and can assist you in the changing mortgage market.
•NO Costs
•NO Points
•NO asset verification
•NO Application fee
•NO Credit repots
•NO No third party fees
•NO title, no escrow, or reporting fees
•ABSOLUTELY NO CLOSING COSTS.
“Smells as fishy as twelfth-century Denmark in August,” I said to my I-want-to-believe-in-a-free-lunch client.
“Well, this is from a good bank,” he said.
“Stay right there,” I said.
With my client still sitting in my office, I dialed and got an agent on speakerphone. I pretended I was the wife of my client and asked about the mailer rate. When I started asking what the bank’s YSP (Yield Spread Premium) was, and what his bank margin rate is, the agent started to back-peddle. He got awful mealy-mouthed awful quick.
The actual loan being offered to back up the mailer certainly was NOT a thirty year or even a fifteen-year mortgage. It was an ARM (Adjustable Rate Mortgage). Essentially, what the mailer offered was a disguised piece of lending, a wolf in sheep’s clothing.
It is now June 2007. The sub-prime crisis is supposed to be over, but still consumers receive these come-ons. People wind up in ridiculous loans for which they are overpaying on the back end. Lenders are supposed to be tightening up their practices. Ha!
Our federal and state agencies promote consumer education as the key to obtaining best rates on a home loan. That mailer should come with a consumer warning, but it doesn't. Here's one that I would append: "There's no such thing as a free lunch! No fees? No costs? Every single penny of those fees and those costs will be rolled up into your loan, so you'll be paying a high rate to finance them!"
Regrettably, the public – my client, for example – still wants to believe such too-good-to-be-true offers are the answer to refinancing.
ALSO: the buzz is out that fly-by-night mortgage companies continue to outsource their administrative jobs to India. Staffers say that If you call the internal help line for Human Resources, you’ll be talking (more like translating) with someone in India. And how would you feel if you did a refi and all your confidential customer information is on-line over there in Mumbai?
You will find that shady mortgage companies are constantly looking for new underwriters. Whenever you go to any job-searching engine, see their pleas for folks who will write bad paper. The sheep disguise can’t hide the big bad wolf’s fangs.
