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Navigating The Mortgage Maze Getting lost can cost you By Broderick Perkins DeadlineNews.Com THE DETAILS of Elisabeth Mitchell's first home purchase were nerve-wracking enough. She could have done without mortgage complications. The Harvard University doctoral candidate could purchase the Cambridge, MA home she'd rented and kept up for nearly a decade, but only after the owner first donated the home to her alma mater in order to obtain a special scholarship annuity. Once the house was in the university's hands, Mitchell and her husband Christopher Chippendalek, scrambled to come up with extra cash to pay the university's closing costs, a concession necessary to cinch the deal. It wasn't until closing day the couple learned they were approximately $4,500 short and the loan's interest rate had ballooned to almost 10 percent. "The original loan was 8.5 percent. There were $4,500 worth of points we never agreed to. I went ahead and signed everything. Over the weekend, I felt really sick. I felt really screwed," said Mitchell. "No one told me I could cancel the loan, but I found out I could and canceled it just in time, within three days," said Mitchell, who later managed to find another home purchase loan without any surprises. The deal closed in early February. "I made plenty of mistakes myself, but there's a fair amount of double-speak in the whole process. You have to make sure you have the right person," for the mortgage, she said. While the details of Mitchell's purchase were a bit unique, her mortgage tribulations have become all too common. A growing number of mortgage consumers are feeling had, often when they can least stomach it -- at the closing table. Under eye-glazing pressure to sign on the dotted line of dozens of perplexing mortgage documents they've had only minutes to read, consumers accept thousands of dollars in unexpected costs because they are afraid that's the only way to buy their dream home, refinance or tap equity. Chances are, it isn't. Fearless mortgage shopping Consumer advocates are advising consumers that they have more power to cope with the problem than they may realize and that they may have to bring that power to bear until the industry and federal regulators resolve the issues. "What we say is to get someone who is not making any money off the transaction, who understands the process to take a look at the documents, a housing counselor," says Chris Saffert, legislative director of Washington, D.C.-headquartered ACORN (Association of Community Organizations for Reform Now), a confrontational consumer advocacy group that addresses housing and community issues including mortgage assistance. Growing confusion about the complex mortgage maze and abuse that capitalizes on ignorance has already spawned a consumer uprising of civil suits, many of them class actions in a backlash that finds even the industry conceding the need for quick reform. "We are bleeding in the courts. We are getting sued because of this. We cannot continue to operate like this," said Rodrigo J. Alba, director of regulatory affairs for the Mortgage Bankers Association of America (MBAA). U.S. Housing and Urban Development Department secretary Mel Martinez has pledged federal reforms and began to bring the issue to a head late last year when his "RESPA Statement of Policy 2001-1" sought to clarify provisions of the 1974 Real Estate Settlement Procedures Act (RESPA). RESPA (Real Estate Settlement Procedures Act) is a federal law designed to protect consumers against undisclosed mortgage costs, fees levied when no services are rendered and kick-backs. In addition to stepping up enforcement of the existing law, Martinez says he's after a more streamlined mortgage finance system and full disclosure of settlement costs, early in the home-buying process. Settlement sheet shambles The problems often begin with the so-called "good faith estimate" a non-binding list of estimated loan costs that must be disclosed to the borrower within three days of application. Unfortunately, the sheet is of little use to comparison shoppers because many costs are not known so soon in the mortgage application process and won't appear on the estimate. Other costs can change drastically and RESPA offers no provisions for enforcing minimal honesty in good-faith estimates. Marie E. Sternberger, an enrolled agent in Sunnyvale, CA said when unexpected costs showed up on her good faith estimate she demanded the lender remove them. "I told the loan officer I was trying to determine if it was worth it to refinance. Based on what he told me it seemed to be worth it. When I got the good faith estimate the costs were a lot higher than he told me they'd be," said Sternberger. "He told me I didn't ask and I told him I didn't know to ask but I had asked him for all the costs. He waived a large fee, about $400 in title fees," she said. It's not until mortgage borrowers receive the HUD-1 Settlement Sheet, which is rarely sooner than a day before closing, do all costs appear, including the controversial "yield spread premiums (YSP)". The settlement sheet is a legally mandated full accounting of all costs related to a mortgage including the loan amount, loan costs, title and escrow fees, real estate broker commissions and legal fees, among a host of others. The cost of yield spread premiums YSPs are points paid by lenders to brokers for delivering borrowers to lenders at higher interest rates. Each point is one percent of the loan amount. One point on a $200,000 loan, for instance, is $2,000. The higher the rate a broker can sell, the more YSPs he or she can land. Critics say YSPs amount to kick-backs, a RESPA violation, but brokers and lenders say YSPs are compensation for a broker's work. In any event, borrowers don't know how much YSPs will cost until closing time which makes it impractical to comparison shop for what can be a steep loan cost. Under current practices, comparison shopping YSPs would require a borrower to traverse the entire mortgage process with several or more brokers to compare YSPs. HUD's proposed reforms would force brokers to reveal YSPs on the good faith estimate and asked industry groups to draft appropriate disclosure forms to accomplish the disclosure. Both the National Association of Mortgage Brokers (NAMB) and MBAA have submitted proposals, but resistance remains. "What the secretary wants is to avoid surprises. We are getting a lot of resistance from brokers. When you go to the supermarket and buy a box, the supermarket doesn't have to tell you their mark up," said Alba. Brokers also argue that YSPs can be used to pay some of a borrowers costs -- in exchange for the higher interest rate. But that's rarely, if ever the case, according to testimony before the U.S. Senate Committee on Banking, Housing and Urban Affairs. "Mortgage brokers, in my experience, never describe yield spread premiums as an optional method for financing settlement costs, nor do the (HUD) Department's own consumer publications or the most popular consumer guides for buying a home," testified Howell E. Jackson, a law professor and associate dean of research and special programs at Harvard University. "My study indicates that the vast majority of borrowers pay yield spread premiums -- on the order of 85 to 90 percent of all transactions. Moreover, the average amount of yield spread premiums is quite substantial, on the order of $1,850 per transaction," he added. Jackson's numbers were derived from his YSP-damning study "Kickbacks or Compensation: The Case of Yield Spread Premiums", an examination of 3,000 mortgages originated in the late 1990s by one group of affiliated lenders. Jackson says he prepared the study as an expert witness in a YSP-related class action suit and that his study is the most extensive empirical investigation of YSPs to-date. Still more mortgage morass Along with RESPA reform the Federal Reserve late last year went after predatory lending practices by amending Regulation Z, The Truth In Lending Act to protect more consumers. Predatory lending is an aberration of the subprime lending market. Subprime loans come with higher rates than prime loans and can be an answer for borrowers who may not qualify for prime rates because of credit problems or other conditions that pose a greater risk to lenders. When subprime loan originators target vulnerable borrowers with exorbitantly high costs, penalties and other financially abusive features, they are considered predatory. New federal provisions increase the number of high interest rate loans protected by the law with special early disclosures regarding a borrower's right to cancel, disclosures about the cost of the loan and disclosures that explain how non-payment could cost a borrower their home. In recent years, title and escrow fees have also come under state and federal scrutiny. The state of California sued 200 title and escrow companies for hundreds of millions of dollars the state said the industry appropriated by charging fees for services never provided and by failing to return unused money placed in escrow. Title and escrow fees may show up on the original good faith estimate, but they may not always appear until closing day. "All this is not strictly a RESPA issue. It's also a truth-in-lending issue with respect to what a consumer gets to see. Everyone is really trying to explain why there is no truth-in-lending with respect to what a consumer gets to see before he or she goes into closing," said Marie McDonnell, an Orleans, MA-based mortgage finance analyst who says she helped pioneer rescuing hundreds of borrowers from questionable loans. "The problems go so deep. It would be easy to say this is what you should do, but that could be sending people in the wrong direction. There often is virtually no help, no recourse for consumers," said McDonnell, who operates as the Mortgage Counselor. Published Wednesday, Feb. 20, 2002, 12:00 PM More Mortgage Market news and information. Copyright © 2002 DeadlineNews.Com

Navigating The Mortgage Maze What's a borrower to do? By Broderick Perkins DeadlineNews.Com A GROWING cottage industry of mortgage counselors and advisors, who offer their services for a fee, counsel mortgage borrowers much as a financial planner counsels consumers on investment planning and savings. They and other experts offer the following advice to help mortgage borrowers avoid unexpected costs and to make sure services are rendered for the fees they pay. Get the details Learn which type of mortgage is best for your financial lifestyle. Throughout your mortgage process retain all related documents. "If I could give people two pieces of advice it would be to educate themselves, not just about the process, but about the issues too because it's affecting them now and later when they refinance and for the life of their home ownership," said Marie McDonnell, "the Mortgage Counselor", an Orleans, MA-based mortgage finance analyst who says she helped pioneer rescuing hundreds of borrowers from questionable loans. "Keep everything, from your original loan documents to lead-paint disclosures. You need to keep each and every monthly payment, 1099 statements, all correspondence, everything. I can reverse engineer loan history with borrowers' data and when loans are sold and servicing is transferred," McDonnel added. Shop right Shop for mortgage brokers, lenders, attorneys, title and escrow companies and other professionals related to the mortgage process. Fees can vary widely. Seek referrals from family members, friends, coworkers and other trusted individuals who've recently enjoyed a satisfactory mortgage closing. "Borrowers spend too much time shopping in the wrong way. They rate shop instead of getting referrals to find someone honest. When they find the honest person, everything else works out," said Randy Johnson, a mortgage broker with Newport Beach-based Independence Mortgage Co., and author of "How to Save Thousands of Dollars on Your Home Mortgage" (John Wiley & Sons, $14.95). Seek full disclosures Hire only brokers and lenders who will fully disclose YSPs, origination fees and any other costs that will affect your bottom line. They should disclose those costs in a timely manner, at about the same time you receive the good faith estimate. Ask for a full disclosure of all the services the broker or lender will perform and what each service costs. Specifically ask "Have you forgotten to mention any costs that might appear on the settlement sheet?" Say "If you forget, I won't consider that an excuse at settlement time and I may choose to walk away from the loan." Remember, lenders and brokers honestly may not be aware of title and escrow fees and others for which they are not responsible. Similarly, question your title and escrow company, attorney and other professionals who may levy fees attached to your mortgage. Also ask brokers and lenders for information about other available loans that are similar to the type you seek. Lock it down Get a loan rate lock -- in writing. A rate lock guarantees your interest rate, points and other loan terms for a specified period. Do not accept a verbal rate lock. It is non-binding. Also be sure your rate lock is long enough to guarantee your rate for as long as it takes to close the loan. Heavy mortgage demand, your need to track down special documents and other factors could delay the process. Examine estimates Scrutinize the good faith estimate and any broker or lender disclosures. Question fees you don't understand. "Many of the fees are negotiable. The good faith estimate is the best place to negotiate the fees because you have not committed to the broker," says Jeffrey A. Arndt, owner of the Lakeland, MN-based MortgageExam.com, a company that assists borrowers obtain the best loan based on a borrower's lending needs. Eliminate surprises To avoid surprises, let the lender and settlement agent know that you will want to see the settlement statement at least one day before closing and that you will not be rushed on closing day. "If you are buying a house, hold your down payment funds until a day before closing instead of making the deposit when you sign the sales contract," says Jeffrey J. Jaye a vice president at Monument Mortgage in San Ramon, CA. "If you bring in a $50,000 check on February 1 and you close on March 1 and the rate is wrong and points are wrong and the fees are wrong, your $50,000 check is there already," creating a time-consuming delay should you need to move on to another mortgage, says Jaye, who is also a member of the Upfront Mortgage Brokers, a group of brokers promising full and timely disclosure. Take your time Set aside time on the day before closing to compare the good faith estimate with the settlement statement. Contact the broker or lender, as well as the title or escrow company to demand that they explain any differences. Ask the broker, lender, title or escrow company to waive any fees that were not listed in the good-faith estimate. "This is the worst time to negotiate fees, but depending upon your intestinal fortitude, and it may drive the broker nuts, but if it is a competitive market and rates are going down it could work," Arndt said. Be demanding Hard-nosed consumer advocates suggest demanding a receipt for each and every charge on the settlement statement. Ask for a waiver of any fee not accompanied by a receipt. "There's at least a bill for every charge because that's how people get paid when money changes hands and it's accounted for," said Roger Harrington, owner of the White Bear Township, MN-based Mortgage Advisory. Others question the tactic and argue the settlement sheet is the receipt. In any event, if you ask for receipts, be prepared for resistance and be prepared to delay closing to get them. "There is already so much paperwork and people are overwhelmed. I'm skeptical that giving them more paper is really going to help," said Chris Saffert, legislative director of Washington, D.C.-headquartered ACORN (Association of Community Organizations for Reform Now), a confrontational consumer advocacy group that addresses housing and community issues including mortgage assistance. Saffert contends finding a mortgage counselor is the best approach. Prepare to delay On closing day, come prepared with plenty of time, pencil, paper, a calculator, and an inquisitive, demanding mind. Ask tough questions Do not hesitate to question any amount that you do not understand and sign nothing until you understand each charge. It's tough if you've been waiting for a month or more to close and suddenly encounter unexplainable fees, but you may have to walk from the table. "Do not bow to pressure tactics. The worst brokers and lenders pressure you the most. They are engaging in high pressure tactics. That's a sign they don't have your best interests at hear," said Saffert. More mortgage assistance For online mortgage help, which often comes from those with the latest market information, considering tapping these resources. • ACORN, 739 8th Street SE, Washington, DC 20003; (202) 547-2500; natacorndc@acorn.org. • Roger Harrington, Mortgage Advisory, 5661 Otter View Trail, White Bear Township, MN 55110; (651) 426-7374; roger@rogerharrington.com. • Marie McDonnell, The Mortgage Counselor, P.O. Box 2067, Orleans, MA 02653; (508) 255-8829. • National Association of Mortgage Planners (NAMP), Bob Chaplin, 3001 LBJ Freeway, Suite 110, Dallas, TX 75234; (800) 724-2004; borrowerinfo@namp.org. • Jack Guttentag, Upfront Mortgage Brokers, 640 Lee Road, Wayne, PA 19087; (484) 595-2041; jguttentag@mtgprofessor.com. Updated Mon. Nov. 22, 2004 More Mortgage Market news and information. Copyright © 2002 DeadlineNews.Com

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