The interest rates and closing costs that you shop for today for a mortgage loan could be dramatically different when you get to the closing table.
Unscrupulous mortgage broker and bank loan officers are intentionally quoting low interest rates and even lower closing costs as a way to get consumers to stop further shopping for a mortgage loan, and sign on with them. By the time the loan closing occurs, the interest rate jumps up as well as the closing costs, putting the consumer at a disadvantage that is both highly illegal and unethical.
In most cases, the unscrupulous loan officer or mortgage broker will quote the interest rates and closing costs over the telephone, even before a loan application is taken or a credit report is ordered. This is in itself is highly illegal, and is one of the most abusive tactics within the mortgage industry. Unless a bank or mortgage lender is offering a truly non-qualifying mortgage loan program with regard to credit or income, they cannot tell you what interest rate you will be charged or what the amount of the closing costs will be for your particular loan request, without first getting ALL of the information needed to make a determination of interest rates and/or closing costs. Yet, this abusive lending tactic goes on every day, with the loan officers and mortgage brokers benefiting at the expense of the consumer.
The Good Faith Estimate (or GFE) that a consumer receives at the time of loan application will contain a list of closing costs that a consumer can expect to pay for a given mortgage loan. The list of costs will include points, appraisal fees, as well as closing fees that are known to the lender at the time of application. Ideally the costs contained in the initial Good faith Estimate should resemble that of the closing costs appearing on the HUD-1 Settlement Statement which you would receive at the actual loan closing.
In the case of loan officers and mortgage brokers using ‘Bait & Switch' tactics, the loan costs on the initial Good Faith Estimate will most likely appear to be significantly lower than that of what the consumer will truly end up paying at the loan closing. Additionally, the interest rate could also change significantly from the time of application, and often times goes without explanation by the loan officer or mortgage broker, leaving the closing agent to sell both interest rate and the closing costs. Depending on the immediate needs of the consumer, the loan may close anyway, with the consumer never knowing why their closing costs increased or why the interest rate increased until its too late to say anything.
The practice of ‘Bait & Switch' is not only abusive; it is highly illegal. Under Federal law, loan officers and mortgage brokers are subject to very steep fines as well as possible criminal charges for committing ‘Bait & Switch', as well as other abusive practices.
The Real Estate & Settlement Procedures Act of 1974 (or RESPA) requires that consumers receive the following:
*A Good Faith Estimate, containing an estimate or a range of charges
*A copy of Buying Your Home, offering a detailed explanation of what closing costs are, as well as other helpful information.
*A HUD-1 Settlement Statement, providing a detailed list of the closing costs you will pay for your loan closing.
Loan officers and mortgage brokers are required to re-disclose any changes in closing costs or interest rates to mortgage loan applicants as often as necessary to keep the consumer informed as to any changes that may occur. If changes occur in the closing costs, a new Good Faith Estimate is required to be given to the loan applicant. If changes in the interest rate occur, a Truth in Lending (or Til as it is known) disclosure may also be required.
The only way for these abusive lending practices to stop from happening, is for you, the consumer, to stop it from happening. If you let these unscrupulous loan officers and mortgage brokers get away with committing this crime, you are allowing yourself to unnecessarily become a victim of this abuse.
The following are some tips to help you prevent becoming a victim of ‘Bait & Switch' and other abuses commonly used by these predatory lenders:
*Demand an ‘honest' Good Faith Estimate at the time of loan application. Let your loan officer or mortgage broker know you have read articles about common lending abuses such as the ‘Bait & Switch', and let them know you will not be a victim. Hopefully this upfront disclosure by you from the start will keep them honest, minimizing any chance that the Good Faith Estimate they give you is as accurate as possible.
*Keep regular contact with your mortgage lender. Ask them for updates on any changes in your loan status, or if they anticipate any changes in the closing costs or the interest rate. If there are changes, demand that they give you new disclosures immediately that reflect those changes.
*Be a smart Loan Shopper. Ask the right questions, beginning with the years of lending experience that a given loan officer or mortgage has. Then ask about the loan programs that they offer, such as FHA, VA, & Conventional mortgage loan programs. Ask about the likelihood of the closing costs and interest rates changing from the initial disclosures given to you, and the reasons for why they might change. Never give a loan officer or a mortgage broker verbal authorization order your personal credit report, without first signing all of the Federally required mortgage loan disclosures.
*Demand to see the HUD-1 Settlement Statement before the loan closing occurs. Federal law requires that HUD-1 Settlement statement be made available to you at least 24 hours prior to the actual loan closing. This gives you an opportunity to see the true closing costs ahead of the closing without the pressure of sitting at the actual loan closing. Any discrepancies in the closing costs should be addressed immediately, especially if these discrepancies were not re-disclosed to you prior to the loan closing
More importantly, don't fall for the fast talking sales pitch that tells you everything you want to hear. Often times, the answers you may want to hear are not always possible. The unscrupulous loan officer or mortgage broker will try to tell you everything you want to hear, even if it means using half truths about interest rates and closing costs. The right mortgage broker or loan officer is the one who will offer you straight forward advice, with many mortgage programs to choose from, and will likely never give you interest rate or closing costs information over the telephone without first taking a complete loan application, pulling credit, and reviewing all income documents. Anyone who does give you interest rate and closing costs information over the telephone without this information is breaking the law.
Keep in mind that Interest rates and closing costs are important, but the loan you receive will likely cost you thousands of dollars over the life of the loan, and choosing the right loan program will help minimize just how much you do pay over the term of the loan.
You can easily avoid becoming a victim of ‘Bait & Switch' tactics and other abuses by choosing your mortgage broker or loan officer wisely. Experienced loan officers and mortgage brokers can help you get the mortgage loan you are looking for, with the right interest rate and competitive loan costs. Choosing the wrong loan officer or mortgage broker can just as easily happen, with consequences far too expensive to even consider.
For free copy of "Buying Your Home" or other information regarding mortgage loan programs, please call 941-206-6000.
Mike Sikorski, GRI
Licensed Real Estate Broker
Licensed Mortgage Broker
Florida Realty Network LLC
22079 Kimble Avenue
Port Charlotte, Florida 33952
Phone 941-206-6000
Email: Mike@FloridaRealty.net
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