Date: Sep 9, 2009
Caroylyn Warren introduces her book, "Homebuyers Beware" and explains that mortgage rip-offs are still alive and well.
The loan shark who bragged about making $40,000 in commissions off of one homeowner contacted me again. Last time we met, we enjoyed filet mignon at an upscale restaurant, Daniel’s Broiler, overlooking Lake Washington, and he divulged to me his secret for overpricing loans, which I revealed to the world in Mortgage Rip-Offs and Money Savers. What would he have to say to me now? I wondered if he’d be angry.
I couldn’t help but shudder at the sound of his voice over the phone, and yet, I couldn’t resist the invitation to meet with him again. I just had to know how his “story” ended. Had he reached his goal of retiring rich while still a young man?
He suggested we get together at Starbucks, quite a step down from the elegant steak house we dined at before, but I didn’t care. For me, it was all about the insider information.
So with a tall skinny DoubleShot in hand, I settled comfortably into a mocha-hued leather chair to hear what Mr. Big Commissions had to say. He wasted no time getting right to the point.
“What if I could show you how people can pay off their 30-year mortgage in seven to ten years without refinancing and without changing their current lifestyle—would you be interested?” he asked.
“Yes, of course,” I said.
“And if I could also show you how people can leverage themselves to have a million dollars or more in savings in the time they’d normally pay off their mortgage, would that be even better?”
“Yes, of course.”
“Great. Then if I show you this and it makes sense to you, is there any reason why you and I couldn’t do business together?”
“Good job asking a preclosing question,” I said, recognizing the sales tactic. I couldn’t help but smile. This was going to be good. “So what is it?”
He chuckled and sat a little taller in his chair, like he was pleased at the rapport he was building. “You see how easy that was? Everybody says yes at that point. And here’s the beautiful thing: With this program, you generate passive income. Agents are making 30 grand a month—for part-time work.”
Passive income? Money coming in with no more work required? At that point, I knew it had to be some kind of multilevel marketing plan where the people at the top of the pyramid got paid on the sales their recruits made; before I could ask, he whipped out the latest edition of Broker-Banker Magazine and showed me the feature article endorsing the equity acceleration program. According to the article, the founders of the company were all about helping America get out of debt. The publisher of the magazine proclaimed, “This is the real deal.”
It was a doozy, all right—one of those “too good to be true” things. But it looked so good on paper, people were eating it up, sales were booming, and anyone who passed a super simple test had the opportunity to make a ton of money.
And when money pours in, you know what happens next. Copycats decide they want a piece of the action, and they start up businesses with essentially the same program, but with a different name and logo.
Soon after, in came the e-mails from folks asking me about equity acceleration programs. Sure enough, the sales agents were busy recruiting other sales agents and the word was spreading. The homeowners contacting me now wanted to know whether or not this program was legitimate. (My response is in Chapter 27, “Deception Exposed.”) People now are less naive, asking more questions than they did a few years back, before jumping into something.
That is a good thing.
Ever since the mortgage meltdown of 2007, the world of credit, homebuying, refinancing, and equity management has changed. Over 250 lenders died a slow and painful death, or in some cases, a sudden crash and burn. Tens of thousands of loan officers were out the door and even more were struggling to hang on and ride out the storm, hoping for better days ahead. Others moved on to new schemes, looking to make just as much money, only this time, with less work required.
Ethical loan officers working in the best interests of their clients did what they could to be a light in their spheres of influence, but the economic crash was a behemoth involving too many players in high places, too big to control.
Teaser rates, deceptive “pick-a-payment” loans that gobbled up home equity like a hungry hippo, giant prepayment penalties, loans for people with no verifiable income, and other insanities led to the mortgage meltdown of 2007–2008. On multiple occasions, I tried to stop borrowers from signing toxic loans, but they would have none of it.
One evening, I called a nurse to warn her that her loan was obscenely priced and to explain how she could get a fair deal. I was incensed that a greedy loan shark would take advantage of a woman who had served in a hospital, caring for the sick, for 25 years, and I wanted to help. But instead of being grateful, she responded by filing a complaint against me for meddling in her business.
All that is history now...so has the craziness ended? Or has the absurdity simply reinvented itself for the current conventional market? Take a clue from these recent true stories...
- A banker surprises her homebuyer with an $11,000 “Discount Fee” that did not appear on the original Good Faith Estimate. When the homebuyer asks what the new fee is for, the bank’s loan officer replies, “I don’t put the Discount Fee on the Good Faith Estimate so as not to confuse people.” Then she slides into some rhetoric about how she thinks God led the homebuyer into her office—or should I say, her spider web?
An escrow company charges $100 to transport loan documents back to the lender by Fed Ex and a $40 courier fee to transport the loan documents. So are the documents going by Fed Ex or by courier? And since when does Fed Ex charge a hundred bucks for an envelope with 50 sheets of paper? When I call the president of the escrow company about this nonsense, he says, “Those fees don’t go to Fed Ex or to a courier; they’re just for our own profit.”
“So they’re bogus fees?” I ask.
“They’re just there for our profit. We use a courier for about half our loans, but charge it on all,” he confesses. Evidently, he doesn’t think the $650 escrow fee and the $85 doc prep fee are enough profit, so he fabricates two more fees—from the president’s mouth straight to my ears.
- A self-proclaimed mortgage expert tells loan officers not to worry about the decline in business. At his seminar, he’ll coach them on how to make 20 grand on a single loan, “as easy as shooting fish in a barrel.” He boasts of making 10 million dollars personally. To back up his claim of having the “financial secret,” one of his protégés testifies that he now makes “six times what I used to get on a loan, while working just 35 hours a week.” This is not a pitch for subprime loans; this guru’s borrowers have 720+ credit scores.
Don’t be deceived: The lust for money is alive and growing like a ravenous monster. New so-called anti-predatory laws lull people into a stupor, convincing them that all the bad loans have died like a fabled sea dragon—but that’s not true. Many of these laws are doing more harm than good, and bad advice disguised as helpful tips are circulating around the Internet faster than a nasty virus.
I know all too well. I’m in the trenches, in the thick of what’s going on, helping people avoid scams, ploys, and tricks—and get the best financing possible.
After working in subprime lending for Ameriquest, GreenTree Financial, and Full Spectrum Lending/Countrywide, I spent seven years working for a squeaky clean full-service mortgage broker in Seattle. During this time, I worked simultaneously as a mobile loan signer, which made me privy to the loan terms of dozens of additional lenders.
Then to advance my career, I accepted a position as an account executive with First Franklin, a wholesale mortgage company that lent money to mortgage brokers all across America. This made me privy to what went on behind closed doors: underwriting exceptions that turned denied loans into approvals, bribes, fraudulent loan applications, advertising strategies and ploys, “off sheet” rate pricing for “special clients,” lavish parties designed to bring in more business, and some shocking confessions made by certain individuals in management. First Franklin is no longer in business.
Now I’m back in touch with Main Street America, helping good folks buy houses and refinance. (For more information, see my Web site, www.AskCarolynWarren.com.) As a homebuyer’s advocate, I am telling you that it is possible to get a fantastic deal and save tens of thousands of dollars on your mortgage—but only if you avoid the financial land mines. That is what this book is all about: exposing the latest and greatest deceptions and helping people save a king’s ransom on their home financing.
What’s Coming Up
Chapter 1 exposes lies and shows you how to get the cheapest loan ever.
When you apply for a mortgage or refinance, the first thing the lender wants to know is your credit rating. Now like never before, credit is king. So, Chapters 2–3 provide updated information on the credit requirements, and how to raise your score faster than you ever thought possible.
Chapter 4 reveals the secret to getting bad credit deleted from your credit profile, including an actual letter I wrote (that you may copy) to get a collection account removed, pronto.
Chapter 5 is a practical five-step plan for people who want to own their own home.
Chapter 6 is for all the good folks who had a foreclosure or short sale and now want to buy a home again.
Chapter 7 is important for every citizen: how to protect yourself from crooks who want to steal your good name. Since ID theft is the fastest-growing crime in America, it’s time to get tough and outsmart the hoodlums.
Chapters 8–19 reveal insider tips that can save you thousands of dollars when you buy a home or refinance. Avoid bogus junk fees and get the lowest rate with this information.
Chapter 20 is a unique perspective on real estate agents. It answers such questions as, “Is my real estate agent making a killing, at my expense?” and “Will I get a better deal if I call the agent on the for sale sign?” This information is for both buyers and sellers.
Chapters 21–23 separate truth from fiction and show you how to avoid being ripped off when doing a refinance. Warning: If you have equity in your home, you’re a sitting duck for greedy loan sharks.
Chapter 24 covers special loans and situations, such as getting a Home Equity Line of Credit, a Reverse Mortgage, a Kiddie Condo for your collegiate, and more.
Chapters 25–28 will blow your socks off, as they expose the newest scams and ploys designed to take money out of your pocket and set the loan officer laughing all the way to the bank.
Chapter 29 reveals what goes on behind the scenes with appraisals and why the new HVCC law has loan officers fuming.
Chapter 30 is a wrap-up, a personal message, and resource information.
Feel free to browse the chapter titles and subheads and skip around to the topics that interest you most. When you’re finished reading, I’d love to hear from you. You can send me an e-mail via my Web site at www.AskCarolynWarren.com.
Easy Reference Guide: Terms to Know
If you come across an unfamiliar mortgage term, use this page for an easy explanation.
APR, Annual Percentage Rate
A figure that includes both the interest rate and some of the up-front fees, calculated as if the up-front fees were amortized over the life of the loan. There is disagreement among lenders as to which fees should be included in the APR calculation; therefore, two lenders with the exact same loan could show different APR figures.
AU, automated underwriting or DU, desktop underwriting
The computerized software program that approves or denies loan applications. Sometimes the program neither approves nor denies, but refers it “with caution” to a human underwriter. AU or DU approval is the first step; a human underwriter reviews the loan file before final approval and before loan documents are drawn up for signing.
Interest paid up front to buy down the interest rate charged on your loan Note, the money you are borrowing. Also called points (see the next page).
DTI, debt-to-income ratio
All the debts listed on your credit report plus your proposed house payment in relation to your gross (pretax) income. This ratio is used to determine what loan size you qualify for.
- An escrow account is money set aside for paying property taxes and insurance.
- An escrow company is a neutral middle party used in some states for closing the loan and handling the disbursement of funds. (Other states use an attorney or title rep. instead.)
FHA loan, Federal Housing Administration
Commonly called the first-time homebuyer’s loan (although, you don’t have to be a first-time homebuyer to use it) because the down payment is only 3.5 percent.
GFE, Good Faith Estimate
A form that lists the terms and all the costs of your loan.
loan officer, loan consultant, mortgage consultant
These and other titles are used interchangeably by employees of banks, brokers, direct lenders, and credit unions.
LTV, loan-to-value ratio
Your loan amount in relation to the price or value of the property. This ratio is used as one of the factors determining your interest rate.
neg. am., negative amortization
A loan where the payment does not cover the entire interest due; therefore, the balance goes up every month. These loans became popular right before the mortgage meltdown. These loans are also called pick-a-payment loans because you get to choose whether or not to make the fully amortized payment each month.
A fee paid up front to the lender. Also called points. If you opt not to pay this fee, then you will have a higher interest rate on your loan.
The lowest rate of the day (rates change daily and sometimes midday as well) that you can get without paying extra to buy down the rate.
Percentage points. One point is 1 percent of the loan amount. For example, one point on a $100,000 loan is $1,000. Paying points up front in your closing costs is done to get a lower interest rate over the life of the loan. It is income tax deductible (consult with a CPA for individual advice).
TIL, Truth-in-Lending form
The form that gives additional information about your financing, including whether or not there is a prepayment penalty and the total cost of your financing.
A person who approves or denies loan applications.
YSP, Yield Spread Premium, back-end commission
Money paid by the wholesale lender to the mortgage broker after the loan closes when the interest rate is higher than par rate.