Mortgage games, mortgage gains

The sorriest part is that you will have bargained hard all the way down the line, then needlessly lost hundreds of dollars to the mortgage company at the end.

And you probably didn’t know it.

You will have negotiated hard on the house, getting the concessions you had to have and maybe you even got the price down to a steal. Then, when you got to the mortgage company, you missed something small — as small as a quarter or a half a percent on the discount points.

If that quarter or half a point was there when you signed the papers, you just gave the loan officer a multi-hundred dollar bonus.

What you paid was a ‘’gain,'’ money that many mortgage companies allow their branch managers to charge — if they can get away with it - to borrowers seeking home loans.

And it is money that goes right into the loan officer’s pocket.

The practice of allowing gains is not illegal and has been going on for years. It is a practice that is defined by ‘let the buyer beware.’

In his book ‘’A Practical and Simple Guide to a Home Mortgage,'’ Bass outlines bank procedures in establishing the loan levels for their branch offices. Every day, he says, the home office calls each branch to give them the latest money rates — which fluctuate daily in reaction to national and even international market changes.

‘’A mortgage loan rate-quote is made up of three components: an interest rate, discount points and an origination fee,'’ Bass says.

For instance, on a 30-year, fixed-rate loan the numbers may look like this: 10 — 1 — 1.

The ‘’10′’ is the interest rate and affects your monthly payment.

The ‘’1 ‘’ is the number of discount points, which primarily are to even out loan yields. (When interest rates go up, discount points normally go down. When rates go down, discount points often go up.)

The final ‘’1′’ is the loan origination fee, which is almost always 1 point, or 1 percent of the total loan. The loan officer usually gets a cut of the origination fee as his commission.

But, loan officers can up their commission if they can get the customer to pay another quarter or half a point that is tacked onto the discount points.

Not all mortgage companies allow branch officers to try for ‘’gains,'’ but enough companies do allow them to make the practice worth scrutiny.

First of all, not that many people shop and compare rates from one mortgage company to another, or even one branch to another. Plus, there is no obligation by the loan officer to disclose that the rate he is charging you is above what even his own home office is quoting.

But over and above all that, says Bass, is the ‘’emotion, nervousness and intimidation'’ of the whole process of buying a house and getting a loan.

To avoid paying gains, Bass recommends that consumers take a little time to familiarize themselves with mortgage practices and some of the language of the mortgage industry.

He also urges:

-Comparison shop. And if a mortgage company has more than one branch in town, call a couple of others to get their rates.

-Ask each lender what time of day they received new quotes from their home office. That way you can compare each one fairly.

-Ask the person quoting the rates if the rates and points are the same as quoted by the home office. Then ask the branch manager if the rates are the same for each loan officer or whether loan officers are allowed quote gains.

In the current market, rates should be fairly static on a day to day basis. But they can change — drastically.

Technorati Tags: , ,