Mortgage broker may earn commission at your expense
By Amy Hoak
MarketWatch
CHICAGO — Brian Diez, a former military man, entered the mortgage business after a career as a stockbroker, figuring the field would offer him an altruistic benefit — helping people buy their first homes. He learned quickly, however, that not every one of his fellow brokers had their clients' best interests at heart.
"What became clear to me is every company was really interested in selling as many loans as they can, and not really helping clients," said Diez, sales manager for First Class Equities in Oceanside, N.Y. His quest to inform consumers has prompted him to create a blog on the topic, briandiez.blogspot.com.
The "dirty tricks" he has seen and heard of range from brokers steering clients into products clearly unsuited for them to shady switcheroos at the closing table.
Consumers can protect themselves by doing some research online before talking to a broker or banker, to have an idea of their mortgage options before they're ever presented, Diez said. They should also request copies of and review their credit reports to know what their credit looks like before the discussion begins.
You may never find that altruistic mortgage lender: It's rare when commission-earning individuals — whether the product is a mortgage, stocks or an automobile — can completely divorce their self-interests from a sale, said Joseph Badal, senior executive vice president at Santa Fe, N.M.-based Thornburg Mortgage.
But there are ways you can shop more wisely for a mortgage:
Watch out for low-payment advertisements, said Kate Crawford, chairwoman of the National Association of Mortgage Brokers' consumer protection committee.
"What it is, it's a teaser ad ... that could lead to negative amortization," she said.
In a negative amortizing loan, borrowers aren't paying the full amount of interest accrued each month and the unpaid amount gets added to the principal, thus increasing the balance. Homeowners with this type of loan can find themselves owing more than they bought the house for — a scenario especially important to remember in a softening housing market.
Although certain exotic loans make sense for some borrowers, they're not for everyone, Badal said.
To find the best rates and terms, compare estimates from a few lenders, he added.
Mortgages with prepayment penalties charge a borrower fees for paying off the entire mortgage or a large portion of the principal within a certain period of time. Penalties can also apply should the borrower choose to refinance.
Terms of the penalties can be found in the Truth in Lending statement given to borrowers. But if the loan has a penalty for prepayment, it may be best to keep shopping, Diez said.
"There are so many out there that don't have them," Diez said. "There's no need to put a client into a mortgage that has a prepayment penalty."
If terms change at the closing table, don't sign the contract, Crawford said.
"A borrower can walk away at any time. That's their right," she said. And never sign a contract stating an origination fee must be paid if the loan isn't closed, she added.
She also recommends following common-sense measures: Don't ever sign a blank form, and get a copy of every paper that is signed. Don't give out a Social Security number before it's time to actually apply. For paperwork that is required by the lender, make a copy and always keep the original.
And while at your lender's office, take a glance around to see how paperwork is handled — it may be one indication of how careful a company is with sensitive information, Crawford said.
