sometimes I wonder what I actually know or understand about mortgages - they make my head spin - yeah I can do the math - I understand the fees, the rates and all of that - but this post is exactly why I send my buyers to someone like you - it keep me from being dizzy.

Thesa... thanks!  You always leave great comments...

this isn't a super professional analysis... I mentioned it was rudimentary... but it shows that there are just so many things that a lender can manipulate in an advertisement.

I mean... with all the negative press about the option arm, Ditech, Lending Tree and Quicken are all selling them on TV - but with a different script.  And I'm sure people are eating them up!

I just saw someone do a blog today touting the miraculous 1% interest rate! 

Sometime soon, consumers will all know the difference in a teaser rate and a real rate!

Great Post!!!  These are the things that drive me nuts.  People need to really know what is going on.  Your post helps.

I'm betting those ads are for people like me, people who don't necessarily understand (or even try to) the difference between rate and APR...  I'm guessing rate means the actual interest you are set to pay at the beginning but the APR is the average over the year after tacking on all the fees...  But see, what do I know...  I'm just looking at the numbers and thinking that $895 for closing costs sounds great (although it's always in the back of my mind that they just roll the other costs into the loan anyway).  Don't worry, I didn't get a loan thru ING.

What I don't really understand is why there are so many fees at all.  I mean, what the heck is a state endorsement?  And why are there taxes on transfers?  And that's just the beginning?  My husband and I have been considering a new home purchase (doubling our square footage, and therefore our mortgage) and I'm truly dreading the day we actually close!  The closing costs alone will take a huge chunk of our down-payment, I'm sure!  Maybe someone will blog about the costs associated with closing and what each fee is and why it's so expensive...  (Hint, hint)  Or maybe they already have... Guess I'll start that search now.

Dave...Advertisements like this and the oh so popular 1% rates drive me CRAZY!  I always suggest consumers shop around, however when they see things like this advertisement, and the 1%, they call wondering!  When I get someone that has looked on Bank Rate and found lower rates, with no points, low closing costs and great APR, I get on a 3 way call with them to check it out.  They are always surprised when the information changes!  Most consumers don't have a full understanding of the Truth in Lending statement! 

Great post Thanks!

I haven't had the "dream client yet.  I just finished a deal with a client that I wouldn't call a night mare, but definitely a bad dream.  But we managed to close the deal in just under a month.  Thats not too bad, really, the client just needed a lot of attention to keep the deal on track.

David, another GREAT post!  Thank you and I hope this helps people to realize that "when it sounds too good to be true...IT IS!"

I think the APR for an ARM is based on the future adjustments as well.  It would be relevant if it were based on a fixed rate.  I doubt there is 21k in closing costs, but good point nonetheless.

Not specifically CLOSING Costs... but buydown points etc that are not disclosed upfront if you look at it...

if you see the adjustments as detailed in my post, you'll see that they do NOT make sense

I was taken by INGDirect..do not ever use their mortgage dept.  they have very highly trained fraud reps.  I called for a quote and the short version is, the rep put it through like i called to actually refinance.  I made the mistake in giving them my credit card and when i backed out and said i never asked for this to go through i called for a quote only,etc.  they charged my account $350 for cancellation fee.  Nice huh.  oh they are very sneaky and got me to say what they needed by 'so does this loan sound good to you' you say yes. that is all they needed.  i am disputing it but what a headache.  The rep also tried to tell me oh if you take this 5/1 arm at 5.5 percent and in year 4 if you want to keep the same rate just give us a call and we can extend it another 5 years at the same rate..and you only pay $500 to do that. hmmmm skeptiple yes.  i get the packet in the mail for the figures we discussed over the phone (thinking this was just information only not knowing it was all loan papers)..read it all..not one word mentioned in writing about the oh call us and we can extend it. another fraudulent sentence.  do stay away from these people, they have been trained to say certain phrases to get you to say yes to when you think your saying yes to just conversation, they are taking that as binding contract. i did report them to BBB and not sure what else i can do..any suggestions on this MISLEADING info they solicit over the phone?

Wow David what a great post.  About one of us stepped up and wrote this.   Glad you did!  Advertising like this gives everyone in the mortgage business a bad reputation.  I feel bad for "Scammed Me"  You know Quicken Loans won't send you a Good Faith Untill they get your credit card and charge it.  So you have to trust what they say as fact, first then pay and then they will put it in writing.  Is'nt that putting the cart before the hosrse.

Glad to see it was featured David. 

Mortgage companies are such dirtballs!  I'm surprised they aren't owned by the mob or something.

I hate this stuff.... Regardless of whether this is considered technically legal, it is bait & switch to a layman <= which is what our buyers/borrowers are.

good job

I hope you don't view this as a hijack David. If so, delete it.

But I wrote a less elequent article regarding the 'big advertisers' and what is really going on. Banks compete you win? Well, I told the other side of the story.....

Eye opening for a lot of people.

http://activerain.com/blogsview/96981/When-Banks-Compete-You

*is there a way to give a post more than 5 stars?*

David... great post.You'll see more ads of this nature come out now, because the national market is down some. I think you did a great job explaining everything here. The consumer needs to be educated. The only thing that needs to be clarified is what you mentioned.

Does this mean Mortgage Brokers have higher fees??

• NO - it means we disclose all fees!!

In all honesty, I don't care if you are a broker or a banker. Both entities have to show all costs and fees. The ONLY thing a banker doesn't have to disclose is the YSP. This YSP is not built into that rate or APR. What's built in there are some points, not mentioned as closing costs. A flat $895 closing cost fee might just be their commitment fee. And then the person would say... well, the points are to buy the point down and then use some excuse that it's not a fee to them, but to the rate.

In any case, this is blatant ....  not a bait and switch, as long as they give you that rate.... but with that APR, they have extremely high fees outside their closing fee. Again, good job... but I just need to clarify the difference between broker and banker.

David..  I was just informed by my client that Bank of America is offering a no closing cost loan.....  lol  And I just saw an ad from Countrywide that talks about no closing costs, not fees, not title... no nothing. What wasn't on the ad was anything about rate or APR.....  hhhhhmmmm    I would love to know what the rate is. I am assuming that they are going off the fact that they are America's largest lender.

People... I am not trying to knock both companies. They are well respected....It's the sales people that make up the company. If someone that is not good not well respected works for Countrywide... they can give you any deal as for seen. Just because you are calling Countrywide, doesn't mean that you will get the best deal. You are dealing with a sales person.  I am trying to educate here. They are just like everyone else in the business. They want people to call in.... the bottom line.  We all get the same money from the same place when all said and done.  

I have a friend that applied for the Cw no cost loan - it meant no origination.

Companies advertise those deals and dont mention the full fees till you call.

But to correct the above article - mortgage banks like us or Countrywide don't have to reveal the yield spread premium.  But like a mortgage broker i can pay any fees up to the program maximum. 

Paying the lending fees out of the rate is very common in CA - 700,000 loan.  they would have 21k to pay the fees and their title is way less than TX.

But i fell the ads are misleading and make the education of customers a more difficult task. 

Jeff

BofA's is included in the rate. Worth consideration for some.

Thanks for the info, I always wanted to do something like this, but never find the time.

David,

Excellent Blog!  Very nicely illustrated.  Average person might not understand it but at least the rest of us do.  The countrywide no cost refinance is a good product for someone who is an investor and wants as much cash out as possible and one who is going to be getting rid of the house soon.  Basically if someone wants to refinance and pay closing costs, then their rate might be 6.25 but if you want to refinance and not have closing costs then your rate is increased to whatever rate that is needed to cover the closing costs.  You do have to admit that it is a genius idea or commercial but again, an avg. person does not understand that.

Okay, let's talk about predatory lending now.

Today was my walk-in/call-in duty!  A guy called me and asked about a 10/20 interest only product for a jumbo mortgage combining his first and second loan and including the closing costs in the new mortgage.  The new loan amount would be at about $535,000.  He told me that he was quoted elsewhere for a 5.875% with 1.50 points.  I ran his scenario on my Countrywide system and if I wanted to match this other lender which I had never heard of, it would have cost the borrower 3.5 points!  Now, you telling me that Countrywide, America's #1 Home Loan Lender is 2 points off?  So basically over $10,000 on this loan?  How are we #1?  How are we the largest?  We are the best because we give the highest rates and highest cost loans?  Now this is a predatory lender!  I told the guy my rates and then emailed him and told him to make the best decision for him.  He can do it in person and shake my hand at the closing table or he can go with this lender that I have never heard of.  I told him if you do not come back then please call me after the closing so that I can refer my parents to the other lender as well.

Just wanted to share my mortgage story of the day!

Your Active Rain Mortgage Man,

Nima                            

PS: Jeff, when did you become mortgage man?  I thought you were Active Rain Goose?

David,

Sounds fishy to me..is that legal to present it that way?

Good post.

I ask the same question that Neal Bloom asked is this legal to offer it to the clients in that fashion?

David,

Excellent post.

What really sucks is that people get sucked into believing these rates and end up in loans that cost them tons of money over time.  It is amazing the types of ads that lenders use as bait to get borrowers.  It is actually disgusting.

I also love it when people don't leave their names in comments like the one above me.

Robert, David, It was completely unintentional that my name did not get attached to my comment above David's. I was not logged in, but simply assumed this meant  I would not get points. Please forgive this error on my part.

INGSCAMMEDME - I'm sorry to hear your problem with them.  This is not an isolated case, I'm sure.   

Tom - I appreciate your input... but if you go to your blog and look at the point you made about competing and using the LendingTree motto - you forgot that LendingTree pulls credit MULTIPLE times.  I have had people shop me using Ditech, LendingTree, Quicken etc... and they get denied for credit issues they didn't have when I started with them.  I had to repull their credit 30 days later to see 10-15 inquiries hurt their already fragile credit.  Banks aren't much better.  Many times they pull credit and hand off to their internal broker to broker out just like I do... but then there are already bank fees on it and then there are commissions for the internal broker and then fees from lenders.  It is a viscious cycle.

Matt B - sup! Thanks!

Karen - welll... the mob doesn't own Vegas anymore... big corporations do... Banks are Big Corporations!

Jeff - I agree...but I've seen the way some banks do loans - whether HELOCs or 1st Mortgages.  They just take your info, tell you a rate and tell you someone will call you to arrange for whatever they need.  It is so internalized in their central system that they often don't even take an app because they have your information in the system already!!  Forget Stating Income - they know already!!   I saw that about BoA today when I was depositing a check - I chuckled when I saw it.  Nice brochure in English and Spanish...the ugly truth is that Banks and Retail Lenders often don't disclose until closing.  They sell it that way and do it whether we like it or not

Ethan - and you just showed how ING is duping consumers - you are allowed to add everything into the rate and I cannot do that because I have to disclose all the fees.  The APR or the Rate have to jump to swallow all those fees.  There is no way that I could get away with that!!

Tom - why worth consideration???  Why not get a Mortgage Broker and have them do the same - jack up the rate and use YSP to pay closing costs with a Broker Credit??  Then at least you know where all that money is going!!

David - I dare you to do one!!

Nima -  I 100% disagree... Investors need cash flows... why would an investor want a higher rate?? Investors should be buying rates down with points to increase cash flows.  Nation's Best Lender or Biggest - I always heard Biggest.  We use Countrywide a lot... but not the best rates for many of our clients.

Neal and Paul - Get a new Lincoln MKX for $399/mo $1644 due at closing... fine print says 32500 miles per 39 months, high credit only, subject to availability, no engine, does not include tax tag license and dealer fees... but you can't read that in small white on a big screen with a busy aggregate concrete drive behind the subtext...  It is the same as BankRate.com... they can offer ANYTHING as long as ONE consumer can qualify for it.  The rest get baited in and switched to another loan.

Janet - You sound like you're sweet and sour about them... great rates, terrible service.  Some clients qualify, most don't... It sounds like any lender but the "Hard to work with" part is the deal killer.  All the big portfolio lenders like to knock down appraisals... you just have to be able to work with them without losing your clients if you want them on your lender roll.

Robert - Isn't the Barnum and Bailey circus headquarters around here somewhere???  PT Barnum said, "there's a sucker born every minute"... people believe what they want to believe... and unfortunately it is a paradigm that us real professionals have to beat out of them at times.  If you go by the sales theory of Thirds... 1/3 of the potential clients out there are yours regardless of what you do... 1/3 of them are out there to prospect and increase your business... 1/3 of them are out there and will never be yours for whatever reason so don't try to get them... these are people that take their financial advice from Commercials... I wouldn't respect them much more if they listened to Suze Orman or the local newspapers... but at least it would show they have a longer attention span!

David, I agree with Thesa.  I wear one hat only....the realtor one.  This stuff is too specialized for someone to dabble in.  I leave the financing to the experts...you guys.  Congratulations on a great post.

David - had a crazy week so sorry I'm getting here late - great post. Like Maggie i only wear 1 hat and leave the morgage to experts like you - I think you showed better that I could ever say - why work with someone like you! 

David,

If someone needs an additional $5,000 or $6,000 or $7,000, then this option works for them!  Basically anyone that knows that they are going to sell their property soon.  I am not saying that it is a smart way to go about getting a higher rate for many years to come but if it is a few months, why not!

David, most of us in the business know the numbers don't work.  We also can point out he APR signifies a major hiding of charges...the real concern I have is the people these ads catch and actually use this method of financing.  They are looking at one thing...the PAYMENT on the total or charges.  Nice post puts a sad but true fact in perspective.

Nima - I can do this scenario... but again I will be DISCLOSING all those fees and how I will wrap them up to make the loan work... but I will also be telling them how much more it will cost them monthly for me to do this.  This is why I don't value this proposition for an investor - more payment = less cash flow which is counterproductive.

The other is you know as well as I do that the "Few Months" request is dangerous - we all have our minimum churn times and lenders do NOT like holding loans for less than 6 months.

If someone needs to max out their cash out, then I understand your point - but the danger is that there is someone out there telling them they're getting a great rate and more cash out without telling them how they're doing it... and then it ends up costing a LOT more a month which is hard to swallow.

Gary - there are also "trusted advisors" out there that tell people go ahead and do it without knowing the down side. 

David,

Very important information for our customers. If an ad seems too good to be true, it is. There is a whole bunch of them out there. The consumer really has to be careful and work with a trustworthy lender, a broker or a banker.

AMEN!!! TRY EXPLAINING A PAY OPTION ARM. IT'S SO HARD TO EXPLAIN THIS TO CONSUMERS. THEY THINK THEY GOT AN AWESOME DEAL, BUT OUR JOB IS TO EDUCATE THEM SO THEY MAKE INFORMED DECISIONS.

THANKS,

AMANDA

Actually - it is a fairly easy explanation.

you have a minimum payment, an interest only payment, a 30yr fixed and a 15 yr fixed... you can choose to pay any of the four.  The only two to consider are minimum and interest only or else just get yourself a 30yr fixed.  The minimum payment is lower than the interest only so when you choose this, the difference is added back to the loan as deferred interest.  You will receive a statement showing all your payment options, your principle and your deferred interest.  You can pay off the deferred interest at anytime and enjoy the tax benefits.  ... blah blah blah

great post, people are always mislead by these types of ads and it makes it very bad for those of us who are honest and really do care about our customers.

Esko & Leo - thanks for the support and the input!

It just shows that there's always someone out there that appears to be better but is actually just working the system to their advantage with their snake oil too...

Rebecca... unilateral is a powerful word and I think the current compliance issues that all smaller brokerages have to deal with is extremely costly.  The issue becomes the enforcement.  Enforcing too much means creativity suffers... it has to be a unilateral effort by brokers to clean up our own industry and bring back the reputation that is so tarnished by all the frauds and snake oil salesmen out there. 

If BANKS that are Nationally Chartered can be in on scamming a client, then what will unilateral regulation do?

the more local the licensing is, the more likely issues are to be ferreted out!!

It is not a FEDERAL case to police everyone in the country - that is why there are local police!  And when they get a federal crime, they pass it up the ladder.

There are already far too few people policing just our state to catch the entire flock of bad eggs...

Quality Control and Unilateral Regulation cannot fit hand in hand.

If you look at Toyota, a star example of quality control, they instill an ethic in their ENTIRE WORKFORCE that encourages each person to take responsibility for the quality control of the entire system.  If you look at Microsoft - people are rewarded for helping solve an issue even if it falls outside of their realm.

You can't Unilaterally regulate/control/license an entire industry without damaging it beyond repair.

Creativity - I have lots of tools, loan program, etc at my fingers... I have the ability to structure a loan CREATIVELY and help advise my clients with what best suits their UNIQUE needs... if the government or anyone tried to Unilaterally Regulate this industry, they'd start by creating conformity in all loan programs.  There would be fewer opportunities for people to finance their homes... and the ones that did exist would have serious limitations.

Just look at the states that say you have to sell off luxury items like big screen TVs before you can get an equity line like Tennessee.

Unilateral anything is Socialist in nature and will not work in a country this large or with as many citizens.  Communism failed for a similar situation

David, your timing is amazing!  I just had a conversation with a nice young lady Friday morning about ING's 5/1 program and explained a lot of what you said.  Their 5/1 has an excellent rate (at least on paper) but the other numbers don't add up.  I mentioned to her how I couldn't understand the significantly higher APR and tried to justify it based on future adjustments (as you did).  What was much more clear is the $895 closing costs - which is really for the 800s only.  Granted that's a good deal for that section of fees, I'm appalled that ING poses that as the total closing costs.  It's easy for us mortgage pros to see through it but everyday customers don't know any better.  My client's a first-time buyer, she has no idea.....she will show up at the settlement table with fees about $5000 higher and wonder what the hell happened.  Not fair to her nor any other customer.

I might even give her the URL to this blog.

Thanks.

- Tchaka 

Tchaka - I had one with a Countrywide no cost.. and I laughed in line at BoA when I saw their flyer.  People get suckered in by their banks all the time and just don't know any better.

Tchaka - that will be $599!

Well, a Communist is one who believes in a classless social organization in which the means of production is owned by all.  I don't subscribe to that belief but I can't imagine that it's the worst thing in the world.  I can certainly think of many other words that would cause much greater consternation.

- Tchaka 

Hi,

thanku for giving a nice suggestion:)

keep going on!!

Just my opinion, but I think all originators whether they are brokers or bankers or whatever should have one standard GFE showing ALL fees and YSP/SRP/ETC...time to stop all the BS since there is no such thing as a ZERO point loan with ZERO fees! Anyone ever heard of LIETECH?

I wonder if a rep from ING is a member here to give a clarification on their APR.

True.  That would be helpful.

If you really thinks is fishy, send it to the DRE with all the errors pointed out.  Let them deal with it.

Sheena - thanks!

Shane... that's right... but banks lobby well

Tchaka & Michael... likely it would violate a few contractual agreements of confidentiality and insider secrets

Beth - but it isn't "fishy" it is normal for banks... you go into the branch or call the 800 number and they smile, shake your hand and have an asst teller biopsy your wallet

David: Why is it so amazing/troubling to have a .89% jump from the base rate to the APR,as ING Direct is advertising? As I look at the other 5/1 ARMS that are compared on various websites, this is a very modest increase. Most are much higher.  

Great post. I am glad that a lot of people are enlightened. The more educated they are the easier for us "good" mortgage brokers to make business. I am suprised from the responses that many people do not understand APR. Great observation!

Lisa, the question that must be posed next is how honest those other websites are.  I would suggest you get rate and corresponding APRs from a few lenders and brokers and see how those stack up.  One of the points in David's post is that he assumes an adjustment of 1% per year after year 5 - which he does admit is an assumption.  Does that mean others show higher APRs because they assume higher adjustments?  That's very possible.  Do the others show higher APRs because there are fees that aren't necessarily being disclosed upfront?  Also very possible.  

- Tchaka 

I like your view on this.  it is ironic that the APR is actually supposed to give borrower more clarity...

I really enjoyed your post.  I can only hope more and more people in the general public realize that advertising is not always telling the truth and you just proved it.  Obviously this is very misleading. 

Just goes to show that you cannot believe everything you read.