Tricks that borrowers' play that
cause mortgage brokers to grind their teeth include:
Net-jumping:
Many consumers use the Internet as an information resource prior to
shopping for a loan through traditional channels. This makes sense. There
is nothing wrong with it. Net-jumping, however, involves using the
broker's time and expertise to become informed and creditworthy, then
jumping to the Internet to get the loan. Here's a broker's story.
"When Jones came to me six
months ago, his credit score wouldn't have qualified him to purchase a
dog house. But I worked with him while he disputed his credit report
with the bureaus, and negotiated with collection agencies. His credit
score went from "D" to "A." While he was working
with me, he learned his responsibilities as a future homeowner�Then he
informed me that he was going to shop for a loan on the internet."
Brokers could protect themselves
against net-jumping by charging a non-refundable fee. Few do this,
however, for fear it would place them at a competitive disadvantage.
Lender-jumping:
Lender jumping is similar to net-jumping, except that after using
the broker�s time and expertise, and after identifying the appropriate
loan and lender, the borrower goes directly to that lender.
What
lender-jumpers don�t realize is that lenders quote lower prices to
brokers than they offer directly to consumers because the broker assumes
the cost of finding, qualifying and counseling the consumer.
As a result, the lender-jumper, who wastes the broker�s time as
well as his own, is as likely to get a worse deal from the lender as a
better deal.
Multiple-Apping:
Another borrower trick is to submit multiple applications through
different brokers -- two, three or even more. All the brokers check
credit, shop loan programs, and fill out the application but only one will
be compensated. The others waste their time.
Borrowers who submit multiple
applications also waste their own time, but the practice is evidence of
how difficult it is to shop traditional mortgage channels. Borrowers
typically can't obtain a complete listing of loan fees and charges until
they submit an application, which encourages "shopping by
application".
Lock-Jumping:
Under a standard loan lock agreement, the lender and the borrower are
committed to the interest rate and other specified terms. Some borrowers,
however, act as though the agreement only binds the lender. If interest
rates rise prior to closing, the lender is committed to the rate specified
in the agreement. But if rates decline, they feel free to go to another
broker and relock at a lower rate.
Borrowers who want both the
benefit of a rate decline and protection against a rate increase should
purchase a "cap". It allows the rate to remain locked if market
rates rise, but if market rates decline the borrower can relock at a lower
rate. A cap costs a little more than a straight lock.
Brokers could prevent lock-jumping
by charging a lock fee credited to the borrower at closing, but forfeited
if the consumer walks. Few brokers do, however. They may fear losing
business to brokers who don't charge. Or they may be reluctant to charge a
lock fee because they don't intend to lock the rate with the lender.
Charging a fee when they are not locking with the lender would convert a deceptive
practice into a fraudulent one.
Many brokers lock loans at their
own risk rather than with the lender. They allow loans to
"float" with the market while informing the borrower that the
terms have been locked. This is a source of extra profit to brokers. They
rationalize the practice on the grounds that they deliver the locked terms
to the borrower even if it comes out of their pockets.
When it comes to mortgage
trickery, consumers are amateurs, and the mortgage brokers who are
tricksters are the pros. Instead of trying to trick a trickster, find one
who isn't.
Copyright Jack Guttentag
2002
