Bait and Switch Victims
Everyday there is at least one email or phone call from someone who is a victim of bait and switch on their mortgage.
This may come as a surprise to you but I'm okay with the occasional complaint about a loan officer's incompetence screwing up someone's mortgage. I'm okay with the occasional complaint about loan officer greed and overcharging. In both instances the borrower had the ability to determine who and what they are dealing with and fix the situation.
I'm not okay with the Bait and Switch business model so many mortgage originators are using out there.
WHY?
Because to the borrower, it's so very hard to see the Bait and Switch coming before it's too late. We, in the business can see it a mile away. To the poor unknowing borrower, these scam artists look like us, they talk like us, they even ask for the same documentation as us. Which is why the "Bait and Switch" even happens to smart people who should know better.
I shot a 15 minute video that I hope explains the bait and switch. It's 14 minutes longer than what I would prefer but all of it needs to be said. If you cannot spend 15 minutes of time learning how to better protect yourself - maybe you need to learn the lesson the hard way.
VIDEO NOT YOUR STYLE?
Maybe the following flowchart will help. It's not an absolute, there are too many variables involved but this might serve as a good reference.
| True Mortgage Professionals | The BAIT and SWITCH |
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Mortgage Quote based on 13 vital loan and credit profile aspects and current accurate interest rates. |
Mortgage Quote based on "best day" past interest rates and assuming "best possible" scenario. Often times no rate sheet is used. |
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Requests a complete loan application. Bank Statements, Pay Stubs, and Full Tax Returns. (May have an easy online application but still wants all the documentation) |
Requests a loan application. It may be a mini application. No other documentation needed at this time. "We'll see if we need anything else later." |
| The Good Faith Estimate Within 3 days of application the Loan Officer will send a Good Faith Estimate based on what they see as the potential real costs for the loan. Over the course of the closing the Loan Officer will continually update and refine these costs as the terms of the loan may change. |
The Good Faith Estimate Unfortunately the GFE sent by the Bait and Switch Artist has been manipulated to obscure the real costs. Although it is federally mandated, it's accuracy is not checked. Because of this loophole, they use the incorrect GFE as a sales tool. |
|
Pulls Credit Report and shares the findings with borrower. Identifies any possible shortcomings and suggests solutions. Cost of the actual credit report may be paid by the borrower. |
May pull the Credit Report but more than likely will defer pulling credit until after the appraisal. Findings are not openly shared. Borrower may be referred to "credit fixing" company for a yielding a hefty referral fee to the loan officer. |
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With the Credit Report, Complete Loan Application, and Complete Documentation in hand a Conditional Loan Approval is obtained. At this point the one missing item is the appraisal. |
The Borrower Paid Appraisal is ordered. This runs a couple of hundred dollars. Although the appraisal was paid for by the borrower, it's not released to the borrower immediately and often not until at least 90 days after the loan is canceled. This is just one way to entrap the borrower. |
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Only now is the Appraisal ordered. Borrower also pays for the actual cost and is given a copy as soon as it is completed. |
Sorry No Updates. One of the key factors in the Bait and Switch is to string you along. |
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Phone Calls and Questions are returned promptly. The Loan Officer knows exactly where the file is, and what status it is in at all times during the entire process. The borrower knows exactly what loan and the terms of the loan at all times. |
Phone Calls and Questions are not returned. Often times the Loan Officer, when finally reached will say, "The file is in process" or "it's in underwriting" Specific details of the transaction are never answered. |
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The Rate Lock. The Rate can be locked anytime during the process. Once a particular loan program has been identified the Loan Officer will look for dips in the market. These dips will save the borrower thousands of dollars over the course of their loan. All benefit of the dip will be passed directly to the borrower. The rate lock confirmation from the Lender's Lock Desk will be sent to the borrower detailing the specifics of the rate lock. |
The Pseudo Rate Lock. The loan is never really locked. The borrower is given a verbal rate lock or told they are "in line" for getting the best rate. If rates happen to dip below the quoted rate the loan officer will lock at a the lower rate but pocket the difference themselves. No written Rate Lock is ever offered. |
| Constant Updates Your Loan Officer calls or emails you constantly. You are kept continuously informed at all times. They call you many times before you have a chance to call them. |
Finally with Appraisal in hand the loan is sent to the processor or "Closing Specialist". They are in charge of gathering all the missing documentation. Once received, you'll be hearing from them again soon. - Sorry. |
| The Underwriter? We passed that stage way back there! We have an approval. We have satisfied all conditions. Yes there might have been speed bumps or turbulence along the way. Often times your Loan Officer saw it before it happened and diverted around it or took steps to minimize it. |
The Underwriter. They are not part of the Bait and Switch. They work for the Lender. They will analyze the documentation provided and issue a conditional loan approval. At this time the rate adjustments will be finally known. That best case scenario that was initially offered cannot possibly be completed. They can do the loan but at a much higher rate or much higher fees. |
| The Phone Call. The Loan officer has reviewed the Estimated Closing Statement from the title company. Everything is going according to plan. The Rate and fees are the same as quoted. They call the borrower and ask when and where they would like to sign the loan documentation. "Yes, I know it's a week before closing was scheduled, but we can close early if you like..." |
The Phone Call. This may come from the Loan Officer, but chances are it'll come from the "Closing Specialist". "We're sorry to inform you that the underwriter has <insert your favorite excuse here> and we have a problem. I know you're scheduled to close a couple of days from now and we might be able to make it. However to do so, we cannot do it at the quoted interest rate." Yes, they do know that steam is now coming out your ears. Remember, they do this all the time. They know what you are going to do before you do. |
| They've got you! You signed the loan papers you thought you would be signing. The rates and terms were identical to what was quoted. You were informed all along the way. Your Loan Officer looked out for your best interest and advised you properly. You now have a loan that best matches your wants, needs and goals. Not to mention that your Loan Officer advised you when to lock. That move alone saved you thousands of dollars over the life of the loan! According to you, your trusted true mortgage professional is a star. You go on to tell everyone you know about the difference a single person can make. |
They've got you! You walked right into their trap. You were initially drawn in by low rates and fees. The False Good Faith Estimate helped reinforce your commitment. The hook was set when you paid for the Appraisal or Application Fee. By stringing you along to the very end they've effectively stopped you from going elsewhere. Out of sheer desperation you agree to their new rates and fees. According to you, all mortgage people are lying, thieving, stealing slimeballs. |
DISCLAIMER:
Although I hope this helps, in my heart I know full well that someone out there will read this lengthy article, they'll watch all 15 minutes of the video, and then they'll be seduced by the very next Bait and Switch Artist they come across.
Maybe P.T. Barnum was right after all.
Related Posts: The 7 Deadliest Mortgage Mistakes 
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