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Top 5 Essential "To Do's" to Avoid Being Taking Advantage of When Signing a Mortgage Through a Broker

 

February 16, 2013  |  Loan-America.com Insights

Are you unclear about what to look out for when signing a mortgage through a brokerage firm? Over the years, many have been deceived into accepting “ultra low rate” mortgages but stung them badly with hidden junk fees and terms that cost tens of thousands over the course of their investment. Don’t fall for the tricks. Read this blog to help identify a few common tricks to look out for.

 

1) Beware of Conflicts of Interest around Commission Fees

Broker's are often provided a fee or commission by a credit provider for arranging a loan based on the products the broker provides. Since different credit providers pay different commission levels, this can influence what loan products the broker recommends to you. As such, brokers may be limited to a particular range of mortgage products that may not suit your circumstances. Even worse, due to the misalignment of incentives, brokers may try to sell you products you don’t need just to increase their own commission wage. [1] 

To avoid being a victim of these conflicts of interest and before signing anything, find out from your broker exactly what loans they offer, who pays their commissions and how their commission structure works. If they are unwilling to disclose any of this information, you should shop around for someone who will.

 

2) Use Online Tools to Make Sure your Broker’s Registered:

Use “BrokerCheck”, a free tool, to help you research the professional backgrounds of current and former FINRA-registered brokerage firms and brokers, as well as investment adviser firms and representatives. This should be one of the first resources to turn to when choosing whether to do business or continue to do business with a particular firm or individual.

Fair Isaac Corporation's MyFICO.com is another tool to reference as it can help you get a realistic estimate for a 30-year fixed mortgage rate based on your credit score.

With these two items in hand, you’ll have more peace of mind about the integrity of the professionals you deal with and the products they offer you.

 

3) Never Sign Blank Agreements and Get Things in Writing

If a mortgage broker asks you to overly exaggerate your income or sign blank or incomplete documents, this strongly resembles the behaviour and tactics used by predatory mortgage lenders and is indicative of dealing with a dishonest company. Evidence has surfaced over the years that some brokers have used similar tactic to structure mortgages to promote default, because simply giving out a product lined their pockets and met their needs more than those of the consumers.

Before signing a mortgage, get a “good faith estimate” in writing to help mitigate any surprises. This will allow you to weigh one option against another. Such an estimate or written agreement should tell you:

  • The type of loan being arranged for you
  • The amount of the loan
  • The term of the loan
  • The current interest rate, and
  • Any fees you have to pay.

 

4) Cross Compare Lender Fees

Home buyers also have to deal with title insurance companies, surveyors and inspectors, all of which have their own fees. If you’ve done some comparison shopping already and have found a better rate, ask the lender to use your preferred vendor instead of theirs.[2]

 

5) Judiciously Review the Good Faith Agreements to Avoid Junk Fees

After being pre-approved and getting a quote through a “Good Faith Agreement”, make sure you judiciously review the document to identify any inflated charges.

Most charges found on your Good Faith Statement should not be higher than 1-1.5% of the loan amount.[3] On the statement, locate the loan processing fee and make sure you are not being charged more than approximately $400.[4] The fees could include broker's fees or commissions, fees to the credit provider or lender for setting up the loan, and/or any early termination fees.[5]

Look out for excessive processing and documentation fees in the following categories:

  • Application fee
  • Underwriting fee
  • Mortgage rate lock fee
  • Loan processing fee
  • Broker rebate

If you do notice anything that resembles an application fee, lock fee, broker administration fee, or courier fees, these are most often junk fees that you should be contested. As a rule of thumb, ask which expenses go into each fee and challenge anything that seems inflated (like overly pricey charges administrative tasks).[6] Most often, by simply raising your concerns companies will consider reduce the fees significantly or eliminating them completely from the deal. This advice applies to other fees as well.

Some mortgage companies and brokers may try to mark up the interest rate you qualify from the wholesale lender that approved your loan. This tactic is called ”Yield Spread Premium” and there is a way to avoid paying it. When your mortgage company or broker provides you the written guarantee, ask to see the guarantee from the wholesale lender. If they refuse, find another broker that will show you this document.[7] Discrepancy between the two fees can cost your tens of thousands of hard earned dollars over the lifetime of the loan.

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US Mortgage Rates at All Time Low – Great News for Consumers

September 14, 2012  |  Loan-America.com Insights

In today’s US real estate market, mortgage rates are hovering near record lows, some claiming these to be the lowest in nearly a century, which bode well for prospective new buyers or re-mortgaging consumers.[1] 

The mortgage rates for the week ending Sept.13, 2012 include the following:

-  30-year FRM averaged 3.55 percent this week, unchanged from last week. Last year at this time, the 30-year FRM average was 4.09 percent.[2]

-  15-year FRM this week averaged 2.85 percent, down slightly from last week's average of 2.86 percent. One year ago, the 15-year FRM averaged 3.30 percent. [3]

Mortgage Rates 30 year

Factors contributing to keeping US Treasury bond yields low and, in turn, interest rates at unprecedentedly low levels include turmoil in world economy, investor concern with the European debt and bond markets, and a shaky economic recovery back in the US.

In addition, just yesterday, the Fed announced a new policy – “quantitative easing” – meant to stimulate the economy through a round of bond purchases targeting the mortgage market. This entails the central bank purchasing $85 billion in bonds per month through the rest of the year, and then $40 billion per month indefinitely until the economy requires less support.[4] The policy is intended to continue driving interests rates even lower to help support lending, borrowing and spending.[5] The Fed also supported their policy with strong language claiming they would extend plans to maintain interest rates at ultra-low levels through into mid 2015, and continue supporting the economy “for a considerable time after the economic recovery strengthens.”[6]

What does this mean for consumers and prospective buyers? Well, consumers should look to take advantage of the low rates by getting into the market or re-mortgaging their current deal to lock in at a lower fixed rate as soon as possible.

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