If It Sounds Too Good To Be True...

Many of our clients are getting mail from different mortgage companies offering "special deals" for loans. What happens is as soon as a mortgage lender pulls your credit, the credit bureaus sell your inquiry to mailing lists that are distributed to direct solicitation companies who then call or write you about refinancing with them. Coincidence, huh?

100% of the time I have looked at the direct mail solicitation, it has been deceptive advertising a bait and switch scam, or simply not as advertised when the client called to take advantage.

For instance:
A client and friend of mine dropped off a piece of mail he received from a lender in Ohio, I advertised an "effective" rate of 3.35%. Now, since the rates at the time were in the low to mid 5's, I knew this had to be a scam. Sure enough, the "effective rate" was nothing more than a creative calculation. Basically, they were advertising a loan at an above market rate that was set up on a bi-weekly loan program. Well, the bi-weekly loan program is nothing more than a way to make one extra payment per year, thus reducing the interest expense over the life of the loan. They took the actual interest and acted like it was paid over 30 years to come up with the "effective" rate. Sounded good, but come on, nobody can offer rates in the low 3's for a 30 year fixed mortgage. If it sounds too good to be true, it probably is.

Another client that I was already doing a refinance for called about a month ago and read me a letter he received from his current loan servicer. Well, it advertised a "low cost" refinance. It advertised a flat fee of $1,500 or so. The rate was the same rate I was offering my friend, so I recommended he call to research it further and told him if his current lender could offer the same rate for less cost than me then go ahead and go with them. About an hour later he called back very upset saying that they told him the flat fee was simply just the origination fee and there were other fees involved that made the deal not so special. Once again, if it's too good to be true, it probably is.

About an hour ago I spoke with a title agent who recommended a relative to refinance with us. I offered a very fair rate and low costs to the client, but he chose to go with a loan broker out of Texas. I have nothing against Texas loan brokers, I am friends with several. However, this particular one totally messed up the application and my title agent friend is very upset with the broker. As I said, if it's too good to be true, it probably is.

Finally, a few minutes ago I received a call from a repeat client that received a piece of mail from a lender about refinancing. They advertised 4.75%. This is simply another case of a "quoted rate" and a "real rate." Lenders can LEGALLY quote ANY rate they wish on any given day. All they have to do is put a disclaimer at the end of the ad saying that "rates are subject to change." Guess what? do you really believe that lender who receive their business through direct solicitations are going to quote market rates or give advice that matters to customers? No way! There is no way today at 5:00 a lender can quote 4.75% without any discount points. Just isn't happening. Finally, if it's too good to be true, it probably is.

There are 26 variables that go into setting an actual mortgage rate. Some of these items include credit score, LTV, debt ratio, # of days locked, purchase, refinance, cash out refinance, loan type, discount fees, origination fees, property type, PMI, and others. Oh yea, rates have been changing on average twice per day over the past 6 months. If ANYONE quotes a rate, that is all it is. Don't expect to get that rate. Ask for a RATE LOCK GUARANTEE in WRITING along with a good faith estimate of closing costs to make sure the rate you are being quoted is not offset by higher than normal closing costs. (Why do you think they call it "discount fees?"

The key is only deal with a mortgage professional that you know well, or one whom comes HIGHLY recommended by someone you trust.