Blown Mortgage

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For a mortgage advocacy website, this has to hit home, right???  One of the major issues I face as an originator is people who seem to want a salesman and not an advocate.  I am convinced that this is one of the biggest problems facing the mortgage industry today, but unfortunately I don’t think this is on Senator Schumer’s radar.  Changing consumer behavior is much more difficult than changing lender behavior.

“Oh great, Morgan has brought on some crazy new contributor to Blown Mortgage.  Is this guy passing blame onto the consumer?  This guy shouldn’t even be allowed to comment on this page!”  Perhaps that is true, but with the amount of loan originations that my partner and I lose to unscrupulous salesmen peddling bad financial sense to unsuspecting yet overanxious homeowners, I know this isn’t just a “me” problem.

Loan originators have the difficult task of balancing two very important goals: 1) make money by selling loans and 2) act in their client’s best interests throughout the loan process.  The grey area for Loan Originators is obvious.  LO’s need to beat the other guy’s deals to make money.  If that means selling a bad buy-down or maybe quoting the 15-day lock rate as opposed to the 30-day lock rate to win the deal, well, the grocery store doesn’t accept honesty in return for food.  (I don’t advocate misleading consumers to make a buck, but I see why it happens.  The best part is that these shady tactics won’t work with an informed consumer who sticks to their original wish-list.)

However, the unsuspecting homeowner has as difficult job too.  They need to sort through emails, phone calls and direct-mail pieces to find the right person (company) to secure a loan for them.  Every homeowner starts out their search for a refinance or purchase loan with the correct demands for their chosen company.  Everyone wants the lowest rate, the lowest closing costs, and honesty throughout the process.  But guess what?  Somewhere along the line, they forget that final piece.  Honesty is replaced by stubbornness, or dare I say…greed?  The same greed that leads LO’s to sell bad loans, makes good homeowners accept bad financial advice.

Here are two examples from THIS WEEK:

1) CA Borrower wants a 30-year fixed loan.  He tells me that he makes plenty of money and is prepared to pay his home off in the 30-year time period.  He repeats this several times.  He also mentions that he loves baseball (awesome, I played professionally) and that he is trying to get his son to go to Dartmouth (another score, I went to an Ivy as well.)  He also mentions that he wants the lowest closing costs possible and that he was misled into his current loan.  As an originator I am ecstatic; not only do we have a connection, but I know that I can give him exactly what he wants!  I explain my access to direct-lender rates, my perfect record with the DRE and my referral letters.  I add that without huge overhead I can keep costs very low.  He seems delighted!  So how does this love-fest work itself out?  We chat again (another love-fest) and I outline the deal offering the Par rate with less than a 1% origination fee in closing costs (no need to get greedy with a slam-dunk.)  He thanks me, says he will review my proposal and we schedule a follow-up the next day.  The next day he misses our appointment.  Today, I get him on the phone and he thanks me for my time (bad sign) and tells me that he is going with a guy offering him a “no-cost” loan.  I ask what the rate is and he tells me.  I counter that the deal he is taking is incongruous with his stated desire to pay off his loan.  I add (emphatically), that he will pay over $56,000 in extra interest over the expected life of the note.  I explain how “no-cost” loans are simply higher rate loans with Points paid by the lender which are not seen by the consumer.  I even take a screen shot of the rate-sheet on my computer and send it to him as proof.  After all of that extra work and effort to try to get him what he asked for originally he says, “Thanks, but no thanks.”

2) Another example from yesterday!  This time the borrower wants a 5-year ARM.  On our initial phone call we hit it off.  He likes football instead of baseball and state schools instead of ‘snobby private schools’, but the connection is still palpable.  By the end of the discussion he is talking to me like his son, and I am eager to help.  With this scenario the Par-rate is still the best option because the buy-down is too expensive to make up for the lower monthly payment, and the buy-up vastly exceeds the 1% total in fees.  I send him the GFE and schedule a follow-up call for this morning.  So what does he tell me?  He has decided to go with a lower rate.  I ask if the other lender is buying-down the rate.  He says, “Yes, but I get a lower interest rate.”  I explain how much he would save in 5 years by accepting the buy-down and how his savings is actually less than what he has to pay to get the lower interest rate.  I ask if the lower payment is what he needs, but with a 25% DTI that answer is obvious.  “No, the interest rate is what I like.”  So what does he do when all facts are presented?  He goes with the other company.

Maybe I couldn’t sell a life jacket to a drowning man?  Perhaps I have taken the honest approach a bit too far?  Both of those are feasible, but I have numerous Top Producer Awards and a clear conscience at night to dismiss both of those explanations.  I just wish that consumers would stick to their guns and incorporate honesty, and integrity, into their half of this huge financial decision.

Graeme K. Brown is C.O.O. of Brown Ram Mortgage, specialists in helping people to understand their loan documents before signing them.  He can be reached at gbrown@brownrammortgage.com or by visiting www.brownrammortgage.com

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