Analyzing and Responding to a Hit Piece on Mortgage Brokers

I came across this interesting hit piece against my industry. Now, normally I hate hit pieces however if ever there was an industry that deserved it...it was mine.The industry is littered with sociopaths that I even wrote about an experience with one of them. Upon close analysis this piece is fairly spot on, however it does need the analysis of an insider to add the proper context.

The piece starts by quoting an unnamed mortgage broker who proclaims that they charge clients that are difficult more than clients that are nice. I have no doubt that this is true. In fact, we have a joke in the business called the PIAC fee (that is the pain in the a$$ client fee). While this may in fact be true, the reality is that there are a whole lot of mortgage brokers in this world and so anything is possible, but not necessarily likely. There are rules and there are regulations. Borrowers are quoted terms and those terms aren't supposed to change without the borrower's permission. There is scum everywhere but an assertion that it is common to charge difficult borrowers extra is quite unfair.

What is more interesting is the manner in which the article states to deal with this...

Get a good faith estimate, which shows the preliminary cost of the home loan, including the origination fee, interest rate, and processing, escrow and title fees. It also tells you your monthly payment amount, including principal, taxes and insurance.Also, don’t pay more than $15 per borrower for credit reports and don’t pay any “admin” fees! Finally, find out the amount of the standard processing fee – a genuine expense paid to a third-party who handles the paperwork of the loan. This is standard and non-negotiable, ranging from $495 to $695 in all 50 states. You can also shop around for a less expensive title and escrow company.

A good faith estimate is standard and it is signed at the beginning of the loan. Thus, you shouldn't get a GFE to prevent from being taken advantage, but because you are supposed to. Everything that the piece says is true, however there is an easier way to deal with it. Closing costs should range between 2000-2500 dollars. If they don't, then examine all the fees. Ultimately, you don't much care what you were charged on any specific fee, all you care about is whether or not your overall costs were reasonable. You can try and find a more reasonable title company if you like, however unless you already know of one, the work isn't worth the trouble. Title companies aren't going to give a deal to someone they've never worked with. If you want to search for a title company just to save a couple hundred bucks, you can, however I would bet the time it takes won't be worth the money you save.

Next, the piece says this...

An origination fee is charged by the broker to orchestrate your loan. This fee goes directly to the broker (in addition to any rebate he earns from the lender). A “point,” 1% of the loan value, is a common fee, but this rate is negotiable and Jack admits that, “sometimes (agency managers) pressure loan officers to overcharge clients to make their numbers.”

Fight back! Make sure to negotiate the origination fee. The larger your the smaller the percentage should be.

Well, for a piece that is supposed to protect you, it doesn't do a very good job. You shouldn't ever pay points unless you have arranged that with the broker. Brokers make money one of two ways. They make money from the fees they charge you at closing or from the fee imbedded in the rate (the Yield Spread Premium). If you ask that the broker minimize your rate by charging you extra closing costs that is one thing. On the other hand, if they are charging you a point without you asking for it you are being ripped off. Frankly, the way to avoid this is to ask for several different scenarios in which the rates and fees are adjusted. That is what I always do. I offer multiple different scenarios, of varying rates and fees, and let the borrower decide which is best. That way you can compare if the extra fees are worth the drop in rate.

Next, the article says this...

Mortgage Brokers make clients pay higher rates to increase profits.

No kidding. Yes, Virginia, the higher your rate the more I make. I am still shocked that people can't follow this simple logic to its conclusion. Now, the article goes on to say that you should ask to see how much the mortgage broker makes, but there is a much better way to resolve this...shop around. Ultimately, you shouldn't care what the broker makes. All you should care about is getting the best deal. You shop around when buying a car, a refrigerator, etc, why wouldn't you shop around for your mortgage. Ultimately, you should try and get the best deal period. Who cares what the credit report fee is? If that broker gives you the best deal, let them "rip you off" all they want.

This leads me to my next point...

In Jack’s view, a client trying to get the best deal is really just an annoyance. “The client will shop you around, tell you to price the loan at a certain rate, you do it, and then at the last minute, they try to change the terms of the loan or they’re going somewhere else.”Jack thinks that is a punishable offence. He declares, “By taking advantage of my time and being greedy, that’s when I say, ‘All right, I’m just gonna charge you extra for doing all this extra work.’”

That is frankly a bunch of nonsense. That isn't how mortgage brokers think at all. Mortgage brokers charge what they think they can get away with. The rule of thumb is that the worse your credit is the more I can take advantage of you. The reality is that if you are a wise and informed consumer the mortgage broker is not going to try and take advantage of you because you will walk. If I deal with someone that shops me around, I know that I can't make a lot off their loan. If I tried, they would find someone else. I personally don't mind someone that shops me around. What I don't accept is someone that plays me against another broker. If a borrower proclaims that some other broker gave them some other loan in order to get a lower rate from me then I walk. If you want to shop around that is one thing, but when you use one broker to brow beat another then you turn into the same scum we are. I don't believe mortgages are a negotiation. I give my best deal up front. You either take it or you don't.

Mortgages is like anything...knowledge is power. The more you understand the better your deal is. Mortgage brokers are like anyone else. They take advantage of those they think are naive.