Why I get frustrated with my Industry

By
Mortgage and Lending with American Sterling Bank

I have to say that today I saw how people can truly get burned by loan officers in this business.  I received a phone call from a semi retired man in northern California who is extremely frustrated with the refinance transaction he just went through.  One year ago he refinanced into an option arm loan that did not have a fixed rate option or fixed rate time period.  He realized that he was loosing equity and decided that he wanted out of any type of negative amortization loan.  He decided to refinance again and was told that he was receiving a five year fixed rate loan with no negative amortization.  He ate the pre-payment penalty on his mortgage and signed the loan docs on the new loan.  He opened his statement to pay his first bill and was hit right between the eyes with a statement that showed he had over $700/month that was "deferred interest" on his new loan.  He contacted the loan officer who closed his loan and was told "well, it does have some negative amortization, but at least it's better than the one you had."  He has a new loan and a new pre-payment penalty and he doesn't know what to do.  His fully indexed rate is 7% and if you actually calculated his debt to income ratio with his documented income his DTI would be 79%!!!

I'm not hear to rant against stated income loans or option arm loans because I have put clients into those types of loans, but they are fully aware of all of the features of their loan.  Before we judge the borrower in the scenario above, and say that he should have just read his loan documents before he signed, lets think about that stack of loan docs that you go through when you close a loan.  People rely upon us as professionals to help them understand the transaction they are going through.  That is the bottom line.  Did the loan officer do anything illegal?  Probably not, but was he transparent and ethical?  You decide. 

 I will do the best that I can to help him, but the outlook is somewhat bleak.  I just though I would vent out loud. 

 

Dave.

Comments (6)

Matthew J Blum - (retired from the business)
Palm Beach Gardens, FL
Last time I checked (and I have done a lot of those type loans) you have 3-4 payment choices.  Why did you not simply just advice your client to pay the other ones?  All of those would prevent any neg am.  You would just have to see what the fully index rate was and if it was really worth refi at the present time.
Jun 15, 2007 11:40 AM
Dave Marzinke
American Sterling Bank - Foothill Ranch, CA

Matthew,

I did not put this client in the loan that he is in.  I received a call from him seeking help to get out of this loan.  Obviously there are the payment options and by making those the loan would not negatively amortize.  This individual said he was told the payment he was quoted was principal and interest and that he was not aware that the loan was a option arm loan. 

The frustrating part is that the client is told one thing and ends up with another according to him.

 

Jun 15, 2007 11:58 AM
Chris Molina
Cooper & Associates Real Estate - Elk Grove, CA
Realtor, Elk Grove CA

Those OptionARMs made a lot of wannabes into top producers in my market.  I have many clients wanting to sell their homes but can't because of both market conditions and the fact that they've been paying the minimum payments on their neg am loan.  Many sellers in my market are forced to negotiate a Short Sale or foreclose on their properties because of these loans.  When I ask my sellers why they chose this type of loan to begin with, I usually get something like, "My loan officer said it was fixed for X amount of years."  Yes, that may have been true, but did Mr. Loan Officer tell you about a little thing called "recast"?  I try my best to steer my clients the right way and get them out of the situation that they've put themselves in but I too get frustrated for the same reason.  Great post!

Jun 15, 2007 12:07 PM
Leo Namiot - LeoLends.com
Canopy Mortgage - Leo Namiot - Saint Augustine, FL
More than just great rates
Welcome to my world, I think we all have the same things happen to us in this business.
Jun 15, 2007 12:39 PM
Matthew J Blum - (retired from the business)
Palm Beach Gardens, FL
Dave, I understand you did not place this client in the loan but these loans now are being offered as a true five year fix and a 30 year fix aswell.  These rates are truly locked.  I have know doubt that the client was not explained it properly.  I was just saying if you looked at the fully index rate versus the cost of the refi the client might have been better off staying in the loan and paying the fully index rate. I do not know the clients situation..
Jun 15, 2007 01:16 PM
Dave Marzinke
American Sterling Bank - Foothill Ranch, CA

Matthew,

Good point.  I will take a closer look and it might be that the only option the client has is to stay in the loan.  Thank you for the feedback. 

 

Dave.

Jun 19, 2007 11:08 AM