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Education is the Only Sure Consumer Protection

Education is the Only Sure Consumer Protection

Realtors, We Must Teach Your Clients to Properly Shop for Rates.
Life is better for all concerned when Your buyers know how to select competent lenders

FIRST, Two VERY IMPORTANT Rules:

Mortgage Rates, Points and Lender Fees are interdependent parts of every rate quote. If any part is missing the Quote is worthless.
Do not fall for "I must have your credit report and financial information before I can quote you a my rate" because this an absolutely outrageous lie. Move to the next lender no matter whojust lied to you. In my opinion this is predatory lending.

Important Mortgage Rate Shopping Tips.

Know your credit score before you begin shopping. Loan availability and the cost of your loan depend on your credit score. Most conventional lenders require a 720, or better, mid score, above 80% loan to value, and most FHA and VA lenders require a minimum 620 to 640 mid credit score. Do not allow any lender to run your credit until You select them as your lender. Credit reports run by several lenders will lower you credit score. If you do not already know your credit score, there are several Internet companies that will provide a free credit report and FICO scores for an additional Fee.

VERY IMPORTANT, Shop all lenders on the same day and time period. Mortgage Rates change every day, sometimes several times a day.

Insist that each lender price the exact same Rate. You pick a rate to shop. The rate does not really matter as long as it is currently available because you are looking for lender for the lowest total cost for the rate you are shopping. Once you establish the lowest cost lender you can zero in on a rate-point-fee combination that works best for your situation.

All lenders offer a range of rates and points for each of their loan types. Rate and points are interrelated, lower mortgage rates cost more points... higher rates cost less points. Create a "Rate Baseline" by asking each lender for the same mortgage rate and then compare their points and fees for that rate.

Shop for a specific loan type, because each type is priced differently. i.e: FHA, VA and Conventional loans, conforming and jumbo have different mortgage rates. Insist that each lender quote rates for the same loan type. Some lenders may present you with other options but insist they also provide a quote for the loan you are shopping for to establish a pricing base line.

Shop each lender for the same mortgage rate lock time period. You must ask every lender to tell you the lock period for the rate they are quoting. Mortgage Rates increase incrementally for each longer lock periods. I suggest shopping rates for a 30-day lock period. Lock periods can vary but most lenders provide locks for 15, 30 and 45 days. Some lenders quote their 15 day, least expensive price, which is not available until after the loan is approved. If you find a lender initially quoting a 15-day rate, it would prudent to eliminate that lender from your short list.

If the Loan to Value is greater than 90% and the spread between the interest rate and APR are less than 0.75% the APR has been misstated.

Insist the lender provide a detailed Good Faith Estimate before you complete an application. You have a right to know to know the price of the loan before you apply. A few lenders, even some large well-known lenders, falsely claim rates cannot be quoted until they have all your personal information. This is an absolutely bogus sales technique, these lenders know that borrowers do not want their personal information spread all over town and their credit score lowered by several credit reports AND they know once a borrower provides their personal information they are likely to stop shopping. Do not apply to any lender before you receive a Good Faith Estimate.

Will the lender allow you to lock your mortgage rate today? You should be able to lock your rate on the day you submit your signed application as long as the signed application is received by the lender prior to 3:00 PM PT. Most lenders stop locking loans at 4:00 PM PT this time is not universal so check with each lender for their lock cutoff. I am not necessarily advocating an immediate lock unless market conditions indicate it is needed. By allowing the lender think the borrower may immeditally lock the lender may provide a more accurate quote.

Bill Ladewig, Your FHA Guru

800.664.SAVE (7283)

Bill@YourFhaGuru.com

Current Rates: Rates

October, 2009 San Diego Mortgage Rate Shopping tips

San Diego FHA and VA Home Loans Escondido Mortgages Escondido Localism San Diego FHA and VA Home Loans San Diego Localism San Diego UFMIP Escondido Mortgages Escondido Localism San Diego Mortgage What is APR

Education is the consumers best protection.
Below are listed some educational articles on lending.

Your FHA Guru Bill Ladewig

800.664.7283 (SAVE)

Bill@YourFhaGuru.com

Website

Bill Ladewig is a Mortgage Broker Licensed by the California Department of Real Estate 00968137

San Diego FHA and VA Home Loans Escondido Mortgages Escondido Localism San Diego FHA and VA Home Loans San Diego Localism San Diego UFMIP Escondido Mortgages Escondido Localism San Diego Mortgage

Posted by Bill Ladewig Your FHA Guru - FHA and VA Loans Since 1970 on 10/21/2009 08:15 AM

Comments (47)

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Originally posted at: BluefoxToday blog : Education is the Only Sure Consumer Protection

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47 Comments on Education is the Only Sure Consumer Protection

OCT

Hi Bill,

Thank you for sharing an educational article. I learn a lot from Active Rain.

John Pusa

Bill... I am a firm believer in education and educating the borrower. Shopping rates on the same day is extremely important. One of my larger pet peeves are those that can give great rates, yet they don't ask the borrower the right questions. Such as goals... and even with that in mind, going over the comparisons in more specific detail. For example.. I just had a borrower shop me for a 5/1 arm and a 30 yr fixed. He thought the 5/1 arm would be the best choice hands down, because he could refinance in 3 years or so, once he had enough equity in the property. But wait, this was an FHA loan and if he doesn't refinance into a conventional loan, and stays with a FHA loan, he will have monthly mortgage insurance for another 5 years. Rut row... out of the 3 other loan officers that he was comparing my GFE's too, ever brought this up... or asked the right questions.. or what he would try to accomplish down the road. They just gave him what he asked for.

In any case, not trying to hijack your post. ;o) But in my opinion, I think this is one of the bigger issues when shopping, and not just comparing good faith estimates. Are you even in the right mortgage program, that should be addressed. Good post.

jeff belonger

John, we all learn a lot on AR.

Jeff, thanks for the comment. You are correct, the mark of a professional loan officer is asking the borrower's goals and is certainly something borrowers should look for.

LOs are you listening?

Bill, excellent blog post. A certain bookmark. While we have a couple of lenders we have built a relationship with, we do insist that our clients shop for the best package over the life of the loan.

Thanks Tim and Pam, I really appreciate your bookmark.

OCT

I wasn't aware that you could get you credit score for free, although I know you can get the report. I've tried this myself just to see - you can get the free report, but you must pay to get the score in addition. My understanding is that the free report is there to help consumers monitor and understand the information on their report - to help them report any discrepancies and fight identity theft, and NOT to help them shop for a loan or other consumer products.

The only "legitimate" place to get your free credit report is www.annualcreditreport.com. If you're not careful, your Google search will land you at that "other" site - you know, the one with all the catchy commercials. Those slackers in the ads look harmless, but if you leave a whiff of your credit card information at their website, you're in for a roller coaster ride of monthly charges on your credit card statement (which can't be good if you're shopping for a loan).

I think that any buyer that's serious about shopping for a loan and wants to take your advice should be willing to spend less than $50 to get their report and score from all three credit bureaus.

Amen to that one. Awesome post! I am sickened by the loan officers that have coasted through our industry without providing a)valid gfe's, b) unrealistic expectations to the client or realtor community and c)not providing clients with an education and financing options for their home loan. Now coming in 2010 our industry is threatened by the few that are probably out of the business now, but we are paying for their bad business practices.

Bill good advise for people shopping for a loan. Now that I am in the business I realize how much I was taken advantage of by lenders before I was in the business (Can you say CountryWide).

Great post. Thank you

Hi Bill, It is so easy to tell a buyer to shop rates but then they get caught up a an experienced loan rep and end up not really knowing how to keep control of the conversation. Well done ! May I reblog your terrific post ?

Tamara, thank you for the information.

Erika, me too and that is what this blog is all about.

Thanks Ben.

Hi Bill, you can reblog and I would be honored.

Excellent, excellent. Of course, I shop loans for my buyers, but then. . . . .

Bill,

I always stop by when I see your post. You always have something relevant to say. Now more than ever the financing aspect of real estate is something we all need to at a minimum have a general understanding of. Keep it coming.

Way to go on the featured post bladewig! I'm glad you finaly said it. Too many borrowers have been taken advantage of because they didn't shop around and realise that the rate they were quoted by their shadey LO was not just unreasonable but an outright lie. I wish I had a penny for every customer I lost to such misinformation only to have them call me up a year or two latter once they realized their mistake! If this blog helps to educate just one consumer then it was well worth the time. Keep em coming bladewig!

Bill - I am commenting from my iPhone right now, but I may need to re-blog this when I get home.

Thanks Lenn, even one excellent from you makes my day.

France and Mark, education is the buyer's and Our best friend. Thank your for your very nice comment.

STEVEN The DUDE I love to hear comments from the absolute best edycator on AR.

Jason, your re-blog would be awesome.

Bill,

Education is one of the key ingredients for our buyers. They tend to hear all sorts of things from friends and also what they hear or see on TV. its nice to have a good mortgage person you can trust, so that we can get our clients the FACTS. Sometimes I find myself not only educating my clients, but also UN-teaching them the incorrect things they take as being true. Great Post !!

Justin, the media seldom gets lending information right, I don't know where they get their information. And once buyers hear it on the media they believe they are hearing words from heaven and the Un-Learning becomes a chore. But we are up to task. Thanks for your comment.

Bill - Good post. I can't over emphasize that borrowers should compare like loan products, and get their quotes all at the same time. They shou;d never allow a lender to pull credit to get a good faith estimate.

Tim and Pam Cash - your clients should be shopping for the best package over the time they will be in their new home, not the life of the loan (unless they plan to remain there forever). Sometimes a loan program with a higher rate with less fees will be better than one with a lower rate with more fees. Most will people move within 5 - 7 years. The loan package and fee/rate combination should be the one that provides the lowest overall cost over time time they plan in living in their home.

Great info Bill!!!

Thank you!

Hi Lewis, thanks for stopping by. BoA, Wells Fargo and Chase, while they provide rates on their sites will not provide transaction specific rates without an application and credit report.

This is unfortunately an effective ploy to halt the borrower's shopping process because buyers are intimidated by big box lenders. I different myself from them by providing rates and GFEs at the drop of a hat and pointing conventional borrowers to my weekly rate survey.

Hi DeeDee thank you.

Hi Bill, thank you for providing this great information. It's important not to compare apples to oranges when shopping for a loan.

Hi Bill~ Thanks for all of the terrific information. It is great to have all of these ideas for our borrowers in one place!

Hi Bill -- Very good information to know. I have seen some AR loan officers on here say that doing a credit check does NOT lower your credit score, so there seems to be a differing of professional opinion there, that is one thing I would really like to know the answer to if it is black and white.

Bill, thanks so much for this post. This is great info to share with my clients.

OCT

Silvia, exactly correct.

Vickie, you are welcome.

Chris, the credit bureau must use expensive software for a mortgage credit report to not ding the score and most credit bureaus have not upgraded their software due to the cost.

Brian, share with as many people as possible because the more who know how the game is played the better off we all are.

Ah, the cost of money. Why banks are in business. Very helpful blog. Excercising to make your credit score higher, to get a better rate.

Good stuff Bill. I like your create a "rate baseline" tip. This way you are comparing apples to apples.

Bill,

This is what makes you a trusted advisor.

This is a good way to shop rates. Thanks for the info.

I agree with most of your blog post except the parts about quoting rates and locking loans. How can a loan officer give a competent rate quotes without knowing the borrower's complete financial picture, which includes analyzing the credit report? If a borrower wants a rate quote, I will give him one, but I will also tell that it is based upon incomplete information. To me, this renders the quote meaningless. How does this help the borrower?

For example, suppose a borrower tells me they have excellent credit and it is true. However, supposed they make thousands of dollars in monthly payments for auto loans, student loans, etc. This may have a too large debt to income ratio and disqualify them for a mortgage despite the good FICO. Unless I have accurate information, I am not helping the borrower. The difference between a 640 and a 720 FICO could raise an interest about 1.5. To me, giving a rate quote without seeing a credit report is like an appraiser evaluating a house without going inside. I have no problem providing a borrower with a Good Faith Estimate before an application is signed. A borrower has every righ tto know what the fees and points will be.

You also state that a loan officer should lock a loan as soon as possible. This is irresponsible. Suppose you lock a loan for 30 days and it takes longer to close. The borrower will have to pay to have the rate lock extended. How is this helping the borrower? As a loan officer, I do not consider myself an order taker. I am an adviser. I spend much time and effort analyzing rate trends. If I believe rates are going down I will tell my borrower not to lock and explain my reasons. It is then up to the borrower to make the decision. During the course of the approval process the evidence may show that rates are about to rise. I will call the borrower and tell him now is the time to lock. I am proud to say that I have saved my borrowers thousands of dollars on loans by waiting for just the right time to lock. If I started a loan a month ago and just blindly locked it, I would have done my client a disservice. If I waited to last week to lock, the borrower could have gotten a lower rate.

Chris, about pulling credit. The new FICO scoring model recognizes that a borrower may have several inquiries because they are shopping for a mortgage. If a borrower has several inquiries in a short period of time, it will count as one credit pull and the score will be hurt only once.

Bill...you're right. I always add that an education is something you get before ...experience is what you get after. Sometimes it takes both...but education is better!

Verlyn

Andrew, when consumers understand the system they can make the system work for them.

Dan, comparing apples to apples is very difficult for consumers without some edycation.

Joesph, the nicest thing said so far. Thank You.

Tammi, you are very welcome.

Paul, I am talking about the initial quote and lenders trying to pressure borrowers into an application and credit report before they find out if the lender is competitive. For instance, would anyone shopping for a car allow a salesman to run a credit report before they received the price of the car? A loan is a product just like any other and a company that requires personal information before they provide a price for their product is unbelievably arrogant... and consumers who fall for that guff are uneducated.

The consumer must also understand that a credit report must be run before the loan can be locked. But locking is part of the process AFTER they have selected their lender. AND, if the consumer provided incorrect information initially they must understand the rate can change. They must also understand that rates change daily, often several times a day. UNDERSTANDING COMES WITH EDUCATION. (not shouting here the caps are for emphasis... ok so maybe I am shouting)

You need to carefully reread the post. It does not say to lock as soon as possible actually it make no reference to when to lock. It does state consumers should compare rates for the Same Lock Period when shopping for a rate. The blog only states that borrower should be able to lock on the day the rate is quoted as a test for rate validity. If a lender thinks the borrower is wants an immediate lock they may provide a more accurate quote. But maybe if the wording confused you it confused others so I will go back and tweak it a bit.

I disagree, Borrowers are at risk of having their score dinged with several reports unless all the credit reporting companies are using expensive software that most credit companies will not purchase because it is costly. Your advice can be particularly dangerous for borrowers with credit score just above the minimum allowable because a couple dings can disqualify them for any loan.

Verlyn, excellently stated, it is best when the two are combined. The only thing is as we become more experienced we realize we need more education.

Bill, Just a wonderful view from an expert! Thank you for taking the time to compile it for the rest of us. It should help us all become a bit better with guiding our buyers into the loan application.

My only counter to this is when a LO starts quoting rates and fees, without the credit report, somewhere later along the line, after the buyer has put down earnest money, the LO gets the credit report and there is some big, nasty, ugly item, like a NOD, or BK, that the borrower didn't want to talk about earlier.

When you asked the questions in Declarations, or would have asked them, except that the borrower didn't want to get an accurate quote, just a quote.

Experience, getting a full application, and asking questions of the borrower on the first contact avoids a great many other issues later on. Try explaining to a Realtor that their great buyer has a BK that they didn't tell you about; "Wasn't that on their credit report?" Yep, but I didn't run it, because they were shopping rates. I had a guy in our office who was an exceptional salesman, but a lousy LO, and he probably did more to blow up more transactions than the recession has; I've heard every excuse, but they always come down to not getting a complete application.

Bill, as always a great post. Thank you for sharing this information. You are a professional!

John, We may be talking about two different things. The discussion is just about rate quotes. A Pre-Qual or Pre-Approval implies you are past the rate quote stage and at that point an application and credit report are essential.

If you are making a case that an application and credit report are required befor the intitial quote the flaw in your argument is that no matter how much information is gathered before a rate quote it is still just a snapshot until it is locked and rates are not locked until the lender is selected and the loan is in process.

As for credit surprises, qualified loan officers ask credit questions as part of their initial quote process and always instructs the borrwer... if there are any undisclosed credit derogs the rates quoted do no apply.

However, let's get real, from the view of some lenders, (including all big box lenders) it is just smart business to intimidate borrowers into completing an application and credit report before the borrower receives rates to halt the shopping process.

We all know that once we have the application and credit report we have a 70 to 80 percent chance keeping and closing the loan because the shopping process will almost always be halted.

Intimidation is the wrong way to conduct business and it creates the wrong mind set.

Small mortgage bankers and mortgage brokers must put the consumer first not just because it is the right thing; it is the only way we will keep the regulators out of our hair. Government regulators controlled by big banks will eventually put all of us out of business and consumers will get to choose only between four big banks.

Bobby, thank you so much, that is a tremendous compliament and something to live up to.

Excellent post. Good points to bring up to our clients. Thank you.

Bill, Great post and could not agree more that Knowledge and Education is the key. The only problem I have is some Realtors try to Educate their borrowers. On a recent transaction a Realtor told there buyer that they did not believe in buying down the rate. The convinced the buyer that paying a .50% Higher rate (for 30 Years) was better than paying ONE Point to receive a .50% Better rate. It may not be relevant, but the lender the borrower choose was affiliated with the Realtors Brokerage. A few months ago, I read that about 60% of first time buyers take the recommendations of their Realtor when selecting a Lender. Maybe this means we need to educate Realtor and Buyers jointly.

Excellent post. I think that some of the loan officers are getting defensive and attempting to justify their positions about pushing for the application. If you ask the correct questions, you can give an initial quote. We all want the application because we feel like we have a greater level of commitment. All borrowers understand that the quote is just that, a quote. If you ask pre qualifying questions, you will know what to expect once you see the income and credit. I hate bogus GFE's.

Millie, thank you. You are welcome to copy it and use it as an information flyer. I send links to several blogs to my borrowers and the information has been appreciated and probably saved more then one from the evil, greedy, grasping hands of my competitors. :o) If you would like the links I would be happy to send them to you.

Tim, thanks again for the heads up on the new FHA condo approval process being delayed to Dec. 7th. I modified my initial post.

Bad information begets bad information. You are correct that we must educate everyone concerned. As for keeping Realtors current we must become known and trusted information sources. That is my purpose with blogs and my website at http://www.yourfhaguru.com.

Kyle, you are exactly correct. I share your feelings about bad GFEs Anything that misleads borrowers will eventually come back to haunt us all.

Again it is all about industry and borrower education. The bad guys can only thrive on the uneducated.

OCT

As credit restoration and education specialists, my partner and I think this has been an excellent conversation and just wanted comment on a couple of things. We believe all people should know where their credit stands BEFORE getting ready to make a purchase.

As Tamara Heyward pointed out, the only site we know of to get a free report is at www.annualcreditreport.com. It is important to let people know that this site still has plenty of opportunities to spend money, mostly on credit monitoring services, so they need to navigate carefully. Since reports are not standardized, these can be complicated and hard to interpret. Also, they have to request each bureau separately which does generate a lot of paper. The advantage to looking at a tri-merge (obtained from a lender) is that the information is much more compact and the FICO score is included.

To get a true FICO score, one has to go to www.myFICO.com, and this does have to be paid for. There are lot of scores being published out there and we call these FACO. These scores can vary widely from the true FICO so they can't even be used as a guideline.

Hard inquiries (like from a mortgage company) do impact the score so anyone saying it doesn't is giving erroneous information. We do not promote "shopping" within a certain period of time. But our definition of shopping is have multiple pulls with no plan. There's no harm in buyers talking to more than one lender to see who they feel most comfortable with, then maybe narrow it down to 2 to compare.

We really appreciate Andrew Mooers' comment about increasing scores as much as possible to get the best interest rates. Too much of our business comes from those who don't qualify and only aim for the minimum score. Our approach is to teach basic credit management so our clients not only maintain their improved credit scores, but are encouraged to contine to improve their credit management. This can in turn minimize overpayment of items such as cars and insurance and impact employment. Getting the right education can save thousands of dollars, something we all can use.

OCT

Great loan tips Bill. I always make sure that my Clients do these things. Points can add up quickly

OCT

Oh Bill, yeah, you can talk about rates, fees, and points can be discussed, and a GFE sent out, as long as you state that you don't have the credit report, or a full app in the notes. I worked at one of the early, internet based discount lenders and we put our rates and fees right out front.

What always chaps my hide is working with someone, getting little info, and them trying to demand to know what rate they'll get, and then at some later point finding a big, hairy NOD monster hiding in the credit report. I also don't get how some LO's can play bait and switch games, or quote borrowers ridiculous rates and fees. We're all working with the same lenders, how does anyone believe that the last guy they talked to can get them 4% with no fees on a 30 yr fixed?

Nancy, that is good information, thank you.

Mark, good education makes for realistic expectations and smooth transactions.

John, good idea to put a note on the GFE. Back in the day I was a heavy advertiser on Bankrate, Monster Moving and several others. We always posted correct rates and APRs and would produce a GFE at the drop of a hat. I was always in a state of Pissed Off because none of the sites would police the lenders who were obviously lying.

OCT

Excellent article. I missed it when you originally posted. Lots of good information here for buyers.

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