The Mortgage Porter

From the Junk Mail Bag

Seems like junk mail from random mortgage companies are on the rise again.   I recently had a client who I helped with a home purchase utilizing an FHA mortgage send me a piece of junk mail that he had received from a company (NOT Mortgage Master) that bothered him beyond the typical "deluge of refi offers from firms who's marketing strategy is to look up public records for a targeted mailing".

Some mortgage originators will buy list of home owners who have a specific type of mortgage, such as FHA, where they can offer a streamline refinance thinking if they use your originating mortgage companies name enough times, they just might fool someone into calling them. 

This piece of mail junk has many red flags that home owners should be aware of.

There is no return address on the mailer anywhere.  You have no idea who you will be calling or if they are even approved to do business in Washington State.  I would never contact a mortgage solicitor if you have no way of researching them first.

They are also miss-using HUD's logo in the upper right corner as if it is there own.  This is a big time no-no that I'm sure HUD would be interested to see.

There is no APR to go along with the rate and the small print on this doozie must be too small for my old eyes.

It is true that FHA streamline refinances do not require an appraisal (therefore you are not proving equity) and assets are not verified either.  However the scenario still needs to qualify and HUD frowns about this type of marketing.

The eligibility for a streamline FHA refinance DOES NOT EXPIRE.  This is a weak attempt to try to create a "call to action" to the home owner.  HUD or lenders couldchange guidelines that would have an impact on an FHA streamline refi. 

Oh by the way, IRRL is a term used for VA "streamlined" refinances--not FHA.

What really pushed my clients button was the outside of this mailer garbage.

 

Another attempt to make this look like it came from Mortgage Master and a nice little threat as a bonus to really make sure you don't disregard their efforts.

I've written about junk mail before many times at Mortgage Porter.  You are welcome to forward this type of crap to the local officials.  They do not want consumers mislead or taken advantage of either.  

As a Washington State home owner, or if you're receiving mail from a mortgage company in Washington State, you can forward mail that you feel is misleading to DFI:

Enforcement Unit, Division of Consumer Service

DFI, P.O. Box 41200, Olympia, WA 98504

A letter like this should also be forwarded to HUD.

I strongly recommend not selecting your mortgage professional by what randomly lands in your mail box.  

Another Classic Piece of Junk...Mail

I actually thought this piece of mail was legit...until we opened it.  This piece of junk was threatening of a possible fine and imprisonment OR BOTH if anyone interfered with it's delivery.

Once you open the mailer, you quickly see that it's from a mortgage company that is so desperate, it must utilize trickery to try to obtain new business.

We have good news about your loan originally funded at:

MORTGAGE MASTER SERVICE CORP

After reviewing your account history we are happy to inform you that you have been preapproved for a new mortgage at a lower monthly payment.  This offer makes you eligible for a modified mortgage at a lower monthly payment regardless of credit, mortgage payment history, or other financial hardships.  If you are in an adjustable loan, this offer makes you eligible to convert to our fixed product line.

There is no rate in this promotion...however it actually states that we've been preapproved for a new mortgage with a lower payment.  What a bunch of baloney.

When I receive a piece of junk mail such as this, I forward it to the Department of Financial Institutions in Olympia.  I hope you'll do the same too.  Misleading advertising in mortgages must stop.  I encourage you to forward your mortgage junk mail (Washington State only) to:

Enforcement Unit, Division of Consumer Service

DFI, P.O. Box 41200, Olympia, WA 98504

Please don't ever select your Mortgage Professional by something you receive in the mail or hear on the radio.  And remember, rates that are advertised in radio and newspaper print are not current.  Rates change constantly (especially these days).

Borrower Beware

You would like to think that with all the licensing and tougher times, that all the mortgage riff-raff have gone back to selling what ever it was they did before...it's not true...not yet.   In fact, it was recently announced that during the first quarter of this year, there's a record amount of mortgage fraud.  At first, I was surprised to hear this but after you think about it, it sadly makes sense.  With less business, some mortgage originators become more desperate and make poor choices...the same holds true for borrowers who "need" a mortgage but don't quite fit today's guidelines.  They're both willing to do "what ever" to get a mortgage loan.

Here are a few actual scenarios I've come across recently that you may want to look out for.

Inflated home values.  Recently a mortgage banker confidently told a borrower looking to refinance their home that it was worth a higher amount than what it actually was.  Most mortgage rates are based on loan to value, so a rate at 80% LTV is better than one at 81% or higher.   Mortgage originators do not know the value of your home until it has been appraised.  We have some tools available, but they are not guaranteed.   Watch out for originators who state your home is worth more (even if you really want to believe them).  You may want to ask them how they arrived at your home value.

Non approved FHA lenders.  FHA mortgage loans are hot.  In fact, a majority of my loans are currently FHA over conventional.   Ask your mortgage originator if they are approved to provide FHA financing.  A big clue if they are not is if they are charging you an origination AND a discount point (often used to pay a lender to fund the FHA loan for the unapproved lender)--this is a RESPA violation (illegal).   Inquire on how many FHA mortgage loans the mortgage originator has personally closed and how long they've been providing FHA financing.   You don't want to get wrapped up in a transaction only to learn your lender can't complete the loan. 

Another predatory trend that I'm spotting are loan originators who collect a fee for assisting a home owner in need with a loan modification.   If you need help with your mortgage, PLEASE contact a HUD approved counselor or Hope Now before your pay a mortgage originator to refer you to an attorney.

Last, this isn't really predatory in my book, but definitely something for borrowers to keep in mind: if a mortgage originator does not have a competitive product available to you, such as a second mortgage/HELOC or FHA loans; they don't have to tell you.   You may seek out a mortgage originator to provide a certain product and instead of them saying "I don't have a competitive HELOC right now, you might want to check out XYZ"; they may say, "lets look at your first mortgage and do a cash out refi".  Don't get me wrong, a cash out refinance may actually make more sense than a second mortgage--just don't do one because the LO is trying to make a paycheck.   I've recently referred a past client to check out a credit union for a small second mortgage...I wish I could do the loan and keep my client contact--however, I simply  don't have the product right now and I know their first mortgage rate is too low to refinance.   

It never hurts to get a second (or third) opinion if what you're hearing from your loan originator doesn't seem to make sense. 

There may be a solid reason if something doesn't pass the "smell test".  Trust your instincts.

Why Your Loan Originator Needs a Complete Application BEFORE Locking a Rate

A home owner contacted me wanting to know how their rate could change so much from their original lock with his current lender for his refinance.   He thought this was his scenario:

15 Year Fixed Rate at 5.375% (I'm assuming that he was paying a point--I cannot tell from this lenders lock confirmation).  Here are the other factors this rate was based on for a $417,000 loan amount:

• Rate Term Refinance (no cash out, he's actually bringing cash to closing in order to bring his loan amount down to the conforming level).
• 700 Mid Scores
• 62% Loan to Value

The LO locked in the rate based on this information about two weeks ago and just provided a "lock confirmation".  It's actually a lock request with the lender she's brokering the loan to.   Two weeks later, the borrower finds out that his loan is being priced based on the following:

15 Year Fixed Rate at 5.75% or 15 Year Fixed Rate at 5.375% plus 1.50 additional points.  Why the change?  After 2 weeks, the LO lets the borrower know that the loan is repriced due to:

• Cash Out Refinance = 0.75% Hit to Fee.  He has a second mortgage that is being paid off with the refinance that was not from when he purchased his home. Fannie/Freddie classify this (paying off a non-purchase money second) as a "cash out" refinance, even though he's bringing cash to closing.
• 627 Mid Credit Score with a 70% loan to value = 0.75% Hit to Fee.  This came to a surprise to the borrower who actually thought his scores were much higher.  With Fannie/Freddie's credit score (risked based) pricing, this is another whammo to the borrower.

Cash out and the borrowers credit scores should have been known to the Loan Originator if not prior to locking the loan, then mere moments afterward.  The LO should have immediately notified their client of the differences between the information used to lock the mortgage and reality.

Loan to value can be tricky for a LO to know with certainty...especially these days.  We often have to rely on our clients to give us an honest estimate of what they feel their home is worth based on what other homes like theirs have sold for in their neighborhood.   Until we have the appraisal, we do not know how the home will be valued.    

I'm sharing this story because there are valuable lessons here for us to learn from.

Borrowers:

1. If you're serious about locking in a mortgage rate, complete a loan application for your Mortgage Professional and allow them to run your credit.
2. Obtain a written Lock Confirmation within 48 hours of locking in your rate.
3. If you smell something fishy...it's probably shark.

Loan Originators:

1. If you have bad news (lower credit score, repriced lock, low appraisal, etc.) deliver it right away.  Don't wait...it's not going to go away.  Let your client know in full detail what you're having to deal with and what steps you're going to take to remedy with.
2. Whenever the terms or cost of the proposed mortgage change, contact your client and provide them with an updated Good Faith Estimate. 

Currently, this borrower feels the LO gambled his mortgage interest rate.  After reviewing the documentation I've been provided, I think it's more likely that she was just really a really poor communicator.   Perhaps she was hoping rates would improve enough to absorb the significant 1.5% hit to fee...I can really only guess.

This is far more than a getting a "rate quote" and saying, "that sounds good, lock it".  When you're locking in your interest rate, you are commiting to the Loan Originator and the Loan Originator is making a commitment to the lender that the loan will be funded.  Your lock is only as good as the information used when it was submitted to the lender. 

So You've Just Become a Home Owner...Feeling Popular?

You will soon feel quite popular if you've just bought a home or at least your mail box will be with tons of junk mail.  Over the weekend I received an email from one of my clients who closed on their new home last month:

"As I’m sure is typical, we’re being deluged with mortgage junk mail.  I see you have several highlights of particularly bad ones you’ve seen, but is there any way to stop the flood?  I know there’s a marker you can put on your credit report that stops credit card offers – is there anything similar for mortgages?"

In a nutshell, your Deed and Deed of Trust are recorded at the county which become "public record".  There are companies that research, buy and resale this information to those wanting to reach out to new homeowners.  You're more popular than you've ever wanted to be...it's the welcome wagon of junk mail.   What's worse is that some companies will present the information as if they are a part of or teamed up with your lender.   

Please check back with your original lender before taking up some of these offers to verify if they are indeed from your mortgage company--the trickery they will resort is amazing and sickening.

Here's a great article that I read another local blog, A Generous People regarding getting rid of junk mail.  I hope it helps!  In the meantime, I recommend opening your mail over your recycle bin. 

The Bottomless Mortgage Junkmail Bag

Here's a new one for you from the Mortgage Porter Junk Mail Bag.  This gem arrived to us in a hand addressed envelope about the size of a greeting card with real postage stamps but no return address.  What a personal touch. 

But wait...there's more!  When you open the envelope it appears as though someone has cared enough about you to send you a newspaper article and there is a written sticky note that says:

"Robert, Try this it works!  I just got two months no bills! [signed] J."

Wow, who is this "J"?  Their name is no where on the envelope and there's no business card included.   The newspaper article is front and back (with a faux-ad of a hottie on both sides) appearing to be an interview of someone in the mortgage/credit repair profession.   The "professional" being interviewed is here to save the day...the article never really says how but invites you to visit a website which I'm not going to promote here. 

The website would leave you to believe this fella is on your side to fight the bad mortgage companies, credit counselors...he's going to teach you every trick in the book after you sign a non-disclosure statement so his "methods can stay secret from the general public".   

The entire campaign is aimed at people who are in trouble financially either from an ARM adjusting or from too much debt.  It's predatory.  Do you remember just a few weeks ago what I said about loan originators who use "skip two months payments" as a ploy to get your business?

I have an issue whenever anyone uses "trickery" to obtain business.  Especially when it's as important as the financing of your home.   This "article" does state "ADVERTISEMENT" in small print on the top of both sides...but it would be easy to miss.  Especially if you're in a tough position with your mortgage or debts and you've received this mail from someone who cares enough to take the time to hand address a note to you. 

I truly believe that those who must resort to doing this type of deceptive marketing is because their business practice is such that they do not have returning or referring clients. 

Please don't ever select your mortgage professional by the junk you receive in the mail.   

Bait and Switch Mortgage Rate Advertisements

EDITORS NOTE: Please notice this post is from February 2008! Wachovia is gone, 5.5% isn't a great rate "right now" and I no longer publish rates at Rain City Guide or weekly here at Mortgage Porter. It simply takes too much time. I'm happy to provide your personal rate quote for your home located in Washington.  10/16/11.

Bait and switch is when a consumer is offered something tempting (bait) that is no longer available and then they are offered something else (switch).   I see this over and over again when lenders of all types promote rates in main steam media such as the radio, print ads, bill boards, television...you get the picture.

Today I noticed a Wachovia ad on the TV promoting a low rate of 5.50%...home owners are dancing for joy.  If you watch real closely to the fast moving small print, it discloses that the rate is from January...um folks, February is almost gone and so is the rate that Wachovia is currently running on CNBC.   If you call them for 5.50% (bait) they're going to offer you something in the low to mid-6's (switch) per their website tonight.

Advertisements on the radio promoting rate are wrong too.  Even if the rate being broadcast is a live interview, the rate can change at any moment.  I have less issue with a live interview--advertisements are planned well in advance.  The rates you're hearing now are from a month ago.   Even if they're from yesterday, they are no longer valid unless the rates are unchanged.    If you call them for the rate (bait) they'll tell you they don't have it anymore but (here comes the switch)....

Print ads take at least a couple days to produce and when rates are published in a newspaper or magazine, odds are that rate is long gone as well (if it was ever available to begin with).

I publish rates too.  Every Friday here and at Rain City Guide.  This started at the request of ARDELL to help show a trend with direction mortgage rates are going based on a specific scenario and it's also based on a set time.  She also uses it to make sure her buyers are getting a fair shake from their lender.  You'll notice my disclosures in easy to read print on what it takes to qualify for the rate and the date and time the rate was published.   Rates change so constantly, that often times the rate I publish in the morning is no longer valid by the time I hit "publish".  This is why I will stagger posting rates on Friday here and at RCG.  If rates change this often, how can anything in print, radio, television or bill board be good for anyone to rely on?

It's my opinion that a rate should not be published unless it's available.  Promoting a rate that once was (a month ago) is nothing less than bait and switch. 

Skip Two Mortgage Payments when You Refi!

The promise of not having to write a check for your mortgage payment for two months seems so tempting that many home owners chomp on the bit when a Loan Originator dangles that bait to lure in a refi candidate.  The truth is you're not skipping anything.

Typically when your close on a mortgage, your first mortgage payment is the following month after 30 days have passed.   So for example, if your mortgage was closing on February 22, your first mortgage payment is due on April 1.  Although it seems like you're "skipping" a month, what's happening here is that the mortgage interest on the new loan is prorated from the day you close.  Based on this scenario, your interest is starting on February 22 and is prorated until the 28 (or 29 in a leap year such as we have this year).  The 6 extra days of interest is charged to you at closing under the prorated interest on your HUD-1 Settlement Statement.  Mortgage payments have 30 days of interest in arrears because of this and this is why your payoff is always higher than your monthly statements by about one mortgage payment (30 days of interest).

In order to do the "Skip Two Mortgage Payments" tango, your refinance needs to close as close to the 15th of the calendar month as possible and you, dear home owner, do not make your mortgage for that month.   So using our same example, if you closed your mortgage on February 15 and do not make a mortgage payment for February, your new mortgage payment is still not due until April 1.  You will have 15 days of prorated interest due at closing (half of a mortgage payment).   Did you skip anything?  No.  You only saved writing a check.  The interest is still there and nothing is free. 

When home owners try "skipping" payments, they also risk late fees being assessed by the bank who is being paid off.  If they do not receive the payment by the 15th, the borrower will have a late fee.  Even if the escrow company wires the payoffs to the underlying lender, there's no guarantee they will receive it in time. 

Click here for a refi rate quote for your home located in Washington.

I was helping a couple with a potential refinance and they were very interested in skipping two month's payments.  This would have been especially costly for them as we were paying off a FHA mortgage.   FHA mortgages do not prorate the interest when they are being paid off.  It only makes sense whenever possible to close them at the end of a calendar month so that the home owner isn't paying double interest.   If they would have closed on February 15, they would have felt like they were "skipping" however their mortgage payoff would have had interest through the end of February AND they would have paid 15 days of prorated interest on their new mortgage. 

Loan Originators who use "skip two months payments" are hoping to skip all the way to the bank.  In fact the LO who was trying to lure the couple I helped last month was charging them 3 points for the same rate that I was offering priced with 1 point.  This lender is not from Washington State and has to rely on deceptive mailers in order to get new business...I'm sure it's because no one who has obtained from them would return or refer their friends and family to them.

There's nothing wrong with scheduling your closing so you have the illusion of skipping two payments, just know going in what it takes to make this happen and what your risks are (late fees).

Click here for a refi rate quote for your home located in Washington.

The One that Got Away: Bait and Switch?

I don't mind losing a prospect (someone who's shopping rates) to a fellow Mortgage  Professional, I do have an issue when I feel the shopper is being fooled or mislead by a loan originator.  Late last week, a "prospect" who had been asking for various scenarios kindly informed me that they decided to go to another lender who was offering a better rate.   Not a problem.   I do like to find out why and what was better than my Good Faith Estimate. 

The scenario:

• 30 Year fixed rate/cash out refi
• $417,000 loan amount with a home valued at 1 mil
• No points (typically a point/1% of the loan amount equals 0.25% to rate).
• No reserve account (this cost 0.25% in fee).
• Full doc for a self employed borrower with excellent credit
• No prepayment penalties

My Good Faith Estimate dated January 17, 2008 factoring in all of the above provided a note rate of 5.750% with an APR of 5.800% with total closing costs just shy of $2750 (title, escrow appraisal, etc).   Note:  I pride myself on having my GFE being as close to the final HUD as possible.  In fact if anything, I'd rather my estimate be higher to start with and have my client pleasantly surprised with lower costs at closing (instead of the alternative).

The prospect selected another lender who's quoting 5.25% with a total of $4,000 in closing costs.  I have searched all the lenders I work with and I have also checked out local credit unions.  I can't find this anywhere!   5.25% may be available at a minimum of 1% discount/origination fee.  1% in fee would place the cost on this loan at $4170.  Then factor another 0.25% in fee ($1042) if the client opted to pay their taxes and insurance on their own.  How is the title, escrow and appraisal going to be paid?  This just does not pencil out. 

It smells a bit fishy to me and this type of volatile market may be tempting for some LO's to "gamble" the market...betting (and praying, or should I say preying) that rates will improve to match what they have told a client they are locked in at.   It's a pricey game that some LO's make their keep playing.  As long as the LO honors the lock commitment to the prospect at what ever cost to the LO (in the event they lose big and rates don't match what they've told the prospect they have), I have no issues.   If the LO begins to squirm should rates rise when they really have no lock at the promised rate...it's foul play. 

Borrower beware.  I hope I'm wrong. 

More from the Misleading Mortgage Junk Mail Bag

Yesterday's prize piece of junk mail has to be one of the worst mortgage mailers I've seen in a while.   It states:

Dear M/M Porter,

Congratulations!  We have great news regarding your account originally funded with Mortgage Master Svc. Corp. ...

Note:  Who ever shows as the lender on your Deed of Trust is public record.  It's not magic that someone has this information.   This information is available for purchase from the credit bureaus, title companies or many other data resources.

We are happy to inform you that you have been preapproved for a new mortgage loan that can substantially lower your monthly payment...we can "freeze" your current interest rate and lock you into on of our "fixed" product lines.

We do not qualify for the Bush/Paulson "freeze" plan.   Nice play on trendy mortgage words.

The Federal Government has issued new incentives on 30 Year Fixed Rate Mortgage Loans through FHA & Fannie Mae!  These incentives have considerably lowered fixed rates and made refinancing attractive again!

We're still waiting on Congress to work out mortgage plans.  Fannie & Freddie now have risk based (credit score sensitive) pricing for a-paper.   Rates are attractive right now due to investors seeking safety in mortgage backed securities (bonds) instead of stocks.

This promotion will expire January 28th 2008!  However, as an added incentive for you to call us right away, there is an immediate opportunity for you to "skip your next two mortgage payments"!!

Ya gotta love the two exclamation points.  The letter goes on how we must call right away and is signed "Have a blessed day!"

Under the signature, it states rates low as blah blah blah, which is an obvious option ARM and does not include any APR.   This is pure trash.   In the fine print below that the letter does state the letter "is not a direct solicitation endorsed or sponsored by Mortgage Master Srvc Corp".   Duh!

What now?  No where on this letter can I see who the lender is or if they are licensed do provide mortgages in Washington state.   Letters that are a solicitation for mortgage loans that are misleading such as this should be forwarded to DFI to investigate.

Here's the address:

Enforcement Unit, Division of Consumer Service

DFI, P.O. Box 41200, Olympia, WA 98504.

Please don't select your Mortgage Professional by a mailer such as this one or a phone call from a total stranger.   Get referrals from your friends, family, co-workers or professionals you trust and respect.   If you had a good experience with your previous Mortgage Professional, contact him or her if they are still in the biz.  If it looks too good to be true, it probably is!