Lies Mortgage Lenders tell Clients

by | Apr 6, 2022

Mortgage officers often lie. Yes, there are a lot of them out there that are not that honest. Today, we’ll be going over four common lies that I’ve heard from clients who come to me from other loan officers. We’ll also go over what you need to watch out for and how to avoid these things at all costs so that you don’t get swindled.

The lack of transparency in our industry is really frustrating. There’s lying by omission or lying because you feel like it or because it’s convenient. There are so many different ways that people can skirt around the truth. However, today, we’ll go over four specific ones that can hurt you and deter you from going with a lender that has a better deal, all because of how a dishonest mortgage broker will present their loan to you.

No-Cost, No-Fee

The first is the no-cost, no-fee line. So often, when we’re talking to people and we give them a rate, they ask if it’s no-cost, no-fee. This doesn’t have a clear definition; it’s kind of a loose term. Costs and fees are relative. Do you mean closing costs, discount points, or loan costs versus other costs? 

If you’ve ever seen a loan estimate, you’ll notice two columns, one for a loan and one for other costs, like your property taxes. So to get an actual no-cost, no-fee loan where you pay nothing is very rare. This covers all the escrow and title fees, which are hard costs, out-of-pocket that you need to pay. If you don’t, someone else needs to pay them. 

Your lender has to get you something called lender credits. To get lender credits without exception, you will be paying a higher interest rate. If your interest rate is the normal kind of what we call Par, which has no lender credits or no extra discount points to pay. If that normal interest rate’s at 3% and you want to have a no-cost, no-fee, which is a total zero fee and zero cost, you’re going to be somewhere closer to 3.75. 

On average, this will be a huge difference in the rate. Now, many people will say things like no-cost, no-fee, when what they mean is no discount points. 

You can buy down your interest rate. It’s possible for you to say that you do not really like 3.5 while the lender will tell you that that’s at no cost and that If you want to get down to a 3% or a 2.75, you could pay a cost. Then you’ll say, “oh no, I like the idea of a no-cost loan.” However, there’s still escrow, title, property tax, county recording fees, an appraisal, etc.

So you really have to be very specific. The easiest way to do this is to look at the loan estimate. Insist on seeing a full three-page loan estimate. It is a nationally standardized document. If you haven’t seen one, here is a link to what one looks like.

Every lender will be required to send you a loan estimate by law at some point anyway. So you should get one upfront as early as possible. Now, look at page number two. If it has any fees on it, then guess what? You don’t have a no-cost, no-fee loan. Some fees are being stuck in and snuck in, and you can question your lender.

You can say, “It was a no-cost, no-fee loan. What’s this?” Your lender will probably say something along the lines of “Well, that’s your property tax, ” which many people say. And then you can insist by saying, “When I said no-cost, no-fee, I want no-cost, no-fee.”

 However, I have to tell you that it doesn’t usually make sense to get a no-cost, no-fee loan; the amount of money you have to get the lender to pay and the adjustment it makes on your interest rate rarely makes financial sense. So, you should bear in mind that it’s usually better to buy the rate down if you’re planning on staying in the property for some years because it makes financial sense over time. 

You can’t walk away from this loan

Another lie lenders tell is that you can’t walk away from the loan. Now, no one actually tells you that you can’t walk from the loan. Nobody’s that bold. However, they give you a lot of pressure to sign an intent to proceed upfront. Now you do need to sign an intent to proceed so that all the parties know that you’re moving forward and it is a real transaction. However, an intent to proceed is just that. It’s nothing but an intent to proceed. 

People get cold feet. There are family emergencies that come up, even though you’ve locked. And as the consumer, even though you’ve signed some initial disclosure paperwork, you have a right to walk away from that loan. Actually, you have a right to walk away from that loan really up until the closing. Now, if it’s a purchase, you’re going to have to sign off on your loan contingency at a certain point. So technically, at that point, you’re putting your earnest money deposit at risk.

My advice is to talk to your loan broker and make sure that the loan is solid before you remove your loan contingency and that everything’s good. I’ve had a client where a family emergency came up and they had to move out of state. They literally walked away the same day the notaries were scheduled to show up at their house and do the signing. Yet, there was nothing we could do. That’s entirely within their legal right. 

The law is totally on your side as a consumer. A mortgage is a financial security that backs your house. A house is most people’s most significant asset, which they’ll ever have in their life. The law in America is very sensitive about protecting the consumer, especially after 2008, when there was a whole real estate bubble, and it kind of screwed the economy up for so long. Since then, we go through great pains to ensure that the rights and the reservations all favor the consumer, you.

So if you ever have a loan broker telling you that once you sign, you’re committed and that’s it. Yes, it would help if you were committed. You shouldn’t be wishy-washy, but you can get out of a loan almost at any time. All you have to do is send an email saying, “Please withdraw my loan. We changed our mind”, and that’s it. You don’t have to communicate with them anymore if you don’t want to. You could be polite. You could tell them why you’re withdrawing the loan, but technically you could just say, “I’m withdrawing. No further questions, please.” 

I can’t control how much I charge you

This is a great sales line that happens to be total baloney. I’ve seen this in writing with other loan officers when people ask them if they can do a little better on the pricing or how much they are making on the loan. Many people ask this when they feel like the loan rate is too high. I’ve seen emails from other loan brokers saying, “I am required by law, by the DODD Frank Act, to charge every borrower the same amount of money”. 

Technically that’s true. So it’s not entirely a lie, but it’s a lie by omission because as a loan broker, and even if you work for a lender, there is an option to charge the borrower directly. So the DODD Frank Act says if the bank is paying you, as the loan officer, you have to charge everybody the same amount. It’s usually 1% or 1.5%. Sometimes, it’s 2%, depending on the mark. However, if the bank is paying you, whether it’s a $300,000 loan or an $800,000 loan or a million and a half, the idea is you’re getting paid the same amount from the bank on every loan.

This is so because they don’t start favoring people who have higher loan amounts or lower amounts or higher credit, or lower credit. This only happens if the bank pays you. Now, there’s always the option to pay for the loan yourself. So instead of having the bank pay you as the broker, you can charge the client, and you might be thinking to yourself, “Why would I want to be charged?” The simple answer is that you could be charged a lot less than if the bank was paying the broker. What this means is that you’ll get a much lower interest rate. I would say that 80% of the loans I do for my clients, we charge the client an origination fee, and that origination fee is what we make. However, we negotiate with the banks and we look for a bank that gives us a lender credit, which is almost the same, if not as much as the origination fee. 

So essentially, we’re working for free because our fees are deducted from your closing costs. Now, there are many ways to structure a loan where you can make less. So if you hear a loan broker say, “Well, I can’t change my fees. I’m required by law.” Just say, “Well, what if you charge me an origination fee?” As soon as they’re charging you an origination fee, they can’t be paid by the bank, and that’s your way of knowing. Now you have that wiggle room to negotiate. 

“Well, why don’t you just charge me $2000 and see if you can get a lender credit?” is an easy way to negotiate the loan. Obviously, many people won’t work for less than what they want and you might have to shop around, but that’s part of the process, which is why we’re here to educate you on what your options are. 

Your Rate is this…

This is the last lie we’ll examine. “Your rate is this… You’re going to be at 3%, don’t worry.” I hear this all the time, people telling me that they have 3% or 2.5% or that they just got quoted at 4% and higher. Do you have a locked loan estimate? It’s very easy to see if it’s locked. Again, it should look like a loan estimate, not a piece of paper on the company’s letterhead that says, “Dear buyer…” or an email. It’s a three-page loan estimate. 

If you do a Google search on loan estimate, or you watch one of my videos on what a loan estimate looks like, you’ll see, it’s a very standardized form on the top right-hand side of the first page.

It’s going to say locked. Yes/No. Then, it’s going to have a little checkbox. If it’s a no, that means your rate is not locked. That loan estimate is just a guess. Now, it’s possible to have an accurate guess. Actually, it should be accurate if you have an honest and ethical loan broker. However, your rate is a ghost until you see that little check box that says locked, until you see ‘Yes’ checked and the expiration date of when the lock expires. It doesn’t really exist unless it’s locked. 

Now, where I see this happen more often than not, and the confusion comes in is on purchases. You cannot lock your rate, except with rare exceptions in construction and builder loans and stuff. However, in 99% of purchase transactions, you cannot lock your rate until you connect it to a specific property. So you could be shopping for six months thinking to yourself, “Well, I have a 3% rate. That’s what my lender said.” No, you don’t. That is completely misleading. 

You don’t have a rate locked until you have an accepted offer, a residential purchase agreement (RPA) with your signature and the seller’s signature agreeing to the price. Until we have that in hand, we can’t lock the rate. So you could be shopping for as long as you want, thinking you have a particular rate. Know that the rates change daily, sometimes twice or thrice a day. However, it’s usually about once a day. So you should ask point-blank your rate is locked. 

Final Thoughts

many people are not super honest in this business. As well as there are a lot of great people in this business, there are also a lot of not-so-great people. Hence, you need to be educated. You owe it to yourself to get in the know and understand the ins and outs of the business so that you can negotiate and recognize when a good deal is hitting you in the face. This also helps you see when someone’s trying to pull the rug out from under you. So get educated to help you get a great mortgage rate.

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