The Truth, The Whole Truth, and Nothing But The Truth

Those words resonate with every American.  We expect it in a Court of Law when someone is giving testimony because the judge and jury arrive at their decisions based upon the assumption that they heard facts.  Consider a system of justice where the jury knows that most of the witnesses were lying, but they still have to come to a verdict! 

Unfortunately, this environment of half-truths, white lies, and sometimes full-blown lies is what many mortgage shoppers face.  The catch is that many shoppers do not KNOW that they are being lied to.  The “rate shopper” begins with a blank piece of paper and starts making phone calls. Sadly, he may collect pages of data, half of which are lies. What use is that?

In my mortgage practice, I never quote rates over the phone to people who aren’t clients. That is very frustrating to rate shoppers but, as I tell them, “I am obliged by my honor to tell the truth. There are many loan officers who are not constrained by ethics, and guess what? They all have better rates than I do!”  There are excellent reasons to hire me, but basing your decision on a low quote is not among them. Some people just don’t understand this, and they hang up, thinking that I am some kind of uncooperative dodo. 

I always wonder what happens to those people. My mortgage practice invariably gets people deals that are better than 95% of what all borrowers are offered. That means that when these callers hang up the phone, they have less than a 5% chance of finding someone who can actually beat what we can do. The odds are not in their favor.

When I talk with other truth-tellers in the business, they tell me similar stories. Occasionally, we do get feedback from those callers, and it is usually a tale of woe of some sort. They usually find out that when the loan officer lied about the rates, it wasn’t the ONLY lie they were told, just the first one.

Sadly, although there are lots and lots of regulatory agencies that are supposed to protect consumers, the plain fact of the matter is that all those rules apply only to the honest people who choose to obey them. The dishonest ones just do whatever they need to do to get the business. They have no fear of the regulators. 

Let’s consider something simple, like the Good Faith Estimate of Closing Costs.  The intent of Congress when it incorporated this into law was that the consumer would get an estimate of rates and fees that he could rely upon when he chose a lender. More specifically, the costs that he paid at the end of the transaction would be very close to what he saw on the initial disclosure. 

But that does not happen in millions of transactions annually.  Haven’t you ever heard the following statement at a cocktail party? “He promised a great rate, but when we signed loan documents, the rate was a lot higher than he promised us.” Guess what: He never did have that “great rate.”  The only invariably true thing that the customer heard on that initial phone call was the loan officer’s name.  Everything after that may or may not have been true depending upon what the loan officer needed to say to rope in the customer.

Here’s some good news for consumers. A bunch of truth-tellers have banded together under the name Upfront Mortgage Broker. They are promoting honesty and integrity among mortgage brokers. The group’s Code of Ethics requires that each of its members be “up front” in it’s dealings with clients. Specifically, the broker’s compensation at the end of the transaction must be the same as what was initially disclosed. More specifically, any Yield Spread Premium paid by the lender will be used to the benefit of the consumer and will not be used as “additional compensation” to the broker, as is so commonly the case.

Consumers who utilize the services of one of these brokers can be assured that the broker will work for the benefit of the consumer, not just figure out where he or she can make the most compensation.

There are numerous incentives built into the pricing structure of all lenders today.  Lenders want lower risk loans, and they build into their pricing structure incentives to get those loans. In a typical brokerage operation, the loan officer gets these incentives but in the UMB system, all of these incentives are passed on to the borrower.

For example, I recently saved a client $7,500 in fees on a $1,000,000 loan. He got .25 point incentive because it was a purchase transaction.  He got another .25 point incentive because his FICO scores were higher than 740. Finally, he got another .25 point incentive because he opened up an equity line at the time of the purchase.  You may not have a $1,000,000 loan, but even on a $300,000 loan, that .75 point incentive would amount to $2,250. And with an Upfront Mortgage Broker, YOU get that $2,250 passed on to you.

You can find out more about this organization by going to its website at www.upfrontmortgagebrokers.org   If you are in the market for a loan, you can search the database of members to find one in your state.

Full disclosure: I am proud to have been a founding member of this organization, and I am a Vice President serving on the Executive Committee.