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.