A client said yesterday that he was tired of shopping mortgage brokers. "All their rates are the same," he said. He had called a bunch of brokers and their good faith estimates were all very similar. Having been through several horror-story closings due to working with inexperienced mortgage brokers, I recalled the details of a recent escrow, which highlights the fact that service is just as important as the rates.
Folsom home buyers elected to work with a bank in Folsom since the bank was located near their new home. They entered escrow last year, with a scheduled closing date 40 days later. This couple had made travel plans to leave for India on the 50th day, after being assured by the bank that they would close on time.
A week before closing, the loan officer promised the buyers that loan docs would be ready to go out. Every day that week we received an email apologizing for the delay and promising that loan docs were being drawn. This went on for 12 days. The escrow was overdue.
On the 50th day of escrow, the buyers decided to try to cancel their international flight and reschedule it for Sunday. Since their travel agent needed time to contact the airlines, the buyers felt they had no choice but to hop in their car and start driving from Sacramento to the San Francisco airport. They made it to Vacaville by the time their agent called to say he was able to reschedule their flight, at a cost of an extra $2,000.
Almost simultaneously, the loan docs arrived at escrow. The relieved buyers and I drove to Folsom to sign. They studied their estimated closing statement and then asked the escrow officer, "What does POC mean?" It meant the loan officer at the bank in Folsom was receiving 2 points from Wells Fargo. The clients were confused. They weren't paying any loan points. It was hard for them to understand why Wells Fargo would pay their loan officer. YSP is controversial.
When they figured it out, they decided the bank in Folsom should pay the difference they were charged to change their flight plans. Lots of luck with that approach. The thing is if they had used the mortgage company their agent recommended, that lender would have guaranteed the fees shown on the good faith estimate and guaranteed the file would close on time. They would have received a lower interest rate, too, because 5% with high FICOs and low debt ratios was not the best rate out there. My preferred mortgage company gets wholesale rates from Wells Fargo. It would have paid charges incurred if the escrow didn't close.
I didn't share my thoughts with them at that point because there was no reason to rub salt into their wound. Besides, I had explained it 50 days ago. The choice in lenders is always the buyers' decision.
Sacramento home buyers deserve guarantees from their mortgage broker. When you interview a mortgage broker, ask if the good faith estimate is guaranteed. Ask if the closing date is guaranteed. If the mortgage broker can't deliver that guarantee in writing, call me, and I'll refer you to a mortgage broker who will, even if it's not my transaction.
The Short Sale Savior, by Elizabeth Weintraub, coming to a bookstore near you in February.
Photo: Elizabeth Weintraub
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Elizabeth Weintraub is an author, home buying columnist for The New York Times-owned About.com, a Land Park resident, and a Land Park real estate agent who specializes in older, classic homes in Land Park, Curtis Park, Midtown and East Sacramento. Weintraub is also a Sacramento Short Sale agent who lists and successfully sells short sales throughout Sacramento. Call Elizabeth Weintraub at 916.233.6759. Put 35 years of real estate experience to work for you. DRE License # 00697006.
The Short Sale Savior, by Elizabeth Weintraub, available through bookstores everywhere and at Amazon.com.
Photo: Unless otherwise noted in this blog, the photo is copyrighted by Big Stock Photo and used with permission.
The views expressed herein are Weintraub's personal views and do not reflect the views of Lyon Real Estate.
Just goes to show you! Like you said, you didn't need to rub it in at closing. They wouldn't have believed you anyway. We try to tell buyers to use local people, someone where you can put your hands around their neck! But they always think the person on the end of the telephone or email is doing a great job, until closing. The amazing thing is we've had lenders blame the realtors for a delayed closing! How they can do that is beyond me.
And mis-information is RAMPANT with what is said re: financing, what is heard by the Buyer/Borrower, and what is realistic/not realistic. Such a good post, I had to re-blog it. :)
Elizabeth - I had a Realtor friend who had a very similar situation happen to him. I was the mortgage professional that my Realtor friend had initially referred his clients to. I pre-approved them and provided a GFE with the guarantee that if we locked in at that quoted rate asap, we would definately close on or before the scheduled COE. The buyers were scheduled to leave town five days after the COE
They shopped the loan with some internet lenders and eventually went with a lender in TX because that lender's GFE had them walking away with more than $1,000 (they were getting a seller credit) and my GFE had them coming to the table with approx. $700.
The loan closed a week late (the buyers had to push back their trip a day) and the clients ended up coming to the table with more than $800. The clients were livid and had no idea why the closing statement had changed from the GFE. If there were reasons why then the out of state lender should have made the clients aware. In the end, that out of state lenders GFE wasn't worth the paper it was written.
Hopefully, as more buyers experience situations like that, they will tell everyone they know that going with an out of area lender was a mistake and others will, hopefully, not make the same mistakes.
That is too bad... 40 days is plenty of time to close. There really is no reason why a mortgage broker could not guarantee their service (rate and close of escrow). The only rough spot is accurately estimating the title company's fees. I have had to really "pad" the typical title company fees on our Good Faith Estimates because they can be so unpredicatable if you are dealing with a bank owned home.
Elizabeth: An honest mortgage lender is worth their weight in gold. Having someone that knows what they are doing is a MUST.
Elizabeth - Like Team Newington, I also am finding such a wide range of costs/fees for title and escrow on REO's. Fortunately, like them, I also kind of pad those costs/fees and having been coming in fairly accurate most of the time. There have been a few times though, where the cost/fees were really kind of whacked.
Have you been noticing this as well with your REO transactions?
It's really great to be have a mortgage broker who you know you can count on and trust to do the fair and right thing by your clients. Now if we could just get them to choose the right ones.
Hi Elizabeth,
Unfortunately, some buyers don't trust the professionals we recommend. I know most Realtors only recommend people who can do the job well with a competitive price.
All the best!
Title and escrow fees are always the unknown factor, and none of my buyers really expect the mortgage broker to guarantee those rates. By guarantee, I mean the lender fees. But I've seen GFEs where the mortgage quoted an escrow fee of $100. What century are they living in? And some of them write zero for prorated interest.
Buyers who choose their mortgage broker based on bogus GFEs are just picking the biggest liar.
I have seen it happen over and over again when the buyer tries to save a few pennies it almost always comes back to bite them.
Elizabeth - It's really too bad that buyer's think they know everything - and don't listen to the experts - US!!
I like to be able to see the mortgage broker the next day or the next week in our little town. The face-to-face contact tends to make them more willing to be helpful and fair to the clients.
The consumers are so mixed up today from the media and all the horror stories that they now shop for the lowest rate. As you know getting the best price does not mean you are getting the best deal. I had a client that shopped me for a cheaper rate. As the closing table it was discovered the cheaper rate came with 2.5 points. In the end the cheaper rate came with a $9,450.00 extra closing cost because of the points! Sad.
I wish we had lenders willing to guarantee their GFE's and closing dates here.
Tina in Virginia
I only recommend lenders that I know for sure will get the job done. I wish more buyers would listen to me and use my guys. I had a nightmare closing last summer when my buyer switched lenders mid-stream. A complete and total nightmare. I'm still getting over it.
Elizabeth - Sometimes there are delays beyond a lender's control, but service and crummy rates, I hope your clients really raise the roof. Also the YSP needs to be disclosed beforehand, not at closing.
Elizabeth,
Sounds like your clients found an inexperienced or uncaring lender (or both). Unfortunately, you will find people like this in every walk of life.
Reading through the responses, I would imagine almost everyone here has had a bad experience with a lender. My personal one was being charged 2.5 points at the closing for a rate I was quoted over a month prior. The loan officer knew she had me stuck because we were taking cash out to buy our current home just one week later and could not have changed lenders. That is one of the reasons I got into this profession.
I'm not sure what the respondent above meant by saying that going with an out-of-area lender is a mistake. If we are upfront and truthful with our clients and educate them about the process, the guy next door could just as easily run them through the ringer. I'm not sure distance makes a difference... maybe it's the perception. Any way you look at it, there are a few loan officers out there who are willing to lie, cheat and steal to get your business. Let's expose them and get them out. They make the educated, honest and ethical lenders look bad.
As far as the YSP being controversial.... I'm open to thoughts on how to handle that. Any suggestions?
Scott
Yes what the mortgage broker did was inexcusable. You did your job you warned the clients 50 days ago. It's not your fault that the client didn't listen.
Elizabeth, I have an excellent mortgage broker who calls it on the dime! She is wonderful....my saving grace. ;-)
BTW? I left a personalized message for you on my post about what happens to you when you turn 50-55! ;-)
Unfortunately most buyers find out too late the difference between price and value. It is true when choosing a Realtor, lender, inspector, attorney or a professional in any other business.
Price is always important and we always want to get a good deal. But saving $100 on an inspector or $250 on a lender is not worth much if we get bad advice, the transaction is never completed or lied to. Many people will "bait and switch" borrowers or offer low prices but with low service.
In the end, value is far more important. Just think, even if your borrowers had paid another loan officer $1000 more they would have still saved money not to mention time and stress in postponing their trip.
Yes, you are very right. I am a mortgage broker in PA and I see it all the time. People call me for a GFE and then they saw that mine is way out of the ball park. But when I ask them what is the big difference they go on to tell me that the lower GFE only has 3-4 months to set up escrow. I always put a full 12 months into the escrows. I tell them that only do they have to take into consideration setting up the escrow but also reimbursing the sellers for what taxes they have already paid for. Once I explain this to them, 9 times out of 10 I get the deal. I always guarantee my GFE, rates and closing! So if there are any Realtors in PA that are looking for this in a mortgage broker give me a call and we can discuss further.
Thanks and good luck to everyone to have a better 2009 than 2008.
Great post. Information is the key in merkets like we have today. Thanks and have a great 2009.
As far as the YSP being controversial.... I'm open to thoughts on how to handle that. Any suggestions?
Hi Scott: Since I'm not a mortgage broker, I don't know how they handle that. I guess if were, like with most things, I'd listen to my conscience.
Hi Kelsey: Out of all my deals over the past year, I've had two nightmare closings. Both, of course, were attributed to using an unknown mortgage broker. Buyers say help, help, but there is little an agent can do when that agent has had no previous experience with that mortgage broker and will never have future transactions with that mortgage broker.
What buyers don't realize is by using a preferred lender, if there's a hold up for some reason, an agent has leverage and can call in favors to get the transaction closed. Plus, the mortgage broker I work with has been in the business a long time and has established close working relationships with many of the underwriters.
As far as the YSP being controversial.... I'm open to thoughts on how to handle that. Any suggestions?
I always found YSP pretty easy to disclose. I tell clients that they have a choice. Either they can pay me in origination or fees, or they can elect to take a higher rate and the lender will compensate me in "commission", known as YSP. I both bank and broker and I explain that in both cases we have the option, as a bank we just don't need to disclose the SRP we receive so mortgage brokers actually have greater disclosure and regulation on some items.
It is easy to explain the same way you do with points. The lender wants to make a certain "profit" on the loan. a borrower can elect to pay 0 points and take a rate where the lender will make a profit on the secondary market or over time by collecting interest. Or the borrower can offer to pay points so the lender makes an upfront profit and in exchange get a lower interest rate.
No closing cost mortgage is pretty much like having negative points. You get a higher rate, but we take the excess YSP to pay your closing costs.
As long as it is all properly disclosed and you are making a "reasonable" profit between upfront fees and YSP customers accept it. They know we need to make a profit as they would. It's when you lie about what it is or are making 4-5% and not offering any value for it that customers justifably get upset.
Elizabeth,
You have great responds from both side, we could only educate and advice our client with our knowledge and experience. Unfortunately we can not make them utilized them.
You will have some clients go with the cheapest GFE. Sometime a few more dollars would get you the service and piece of mind you deserve. We will always have lenders cut corners in their GFE to get the deal. These guys are TRANSACTIONAL and keep me in business.
Elizabeth - Like Roland, I also have no problem explaining loan origination (LO) fees or yield spread premium (YSP) to a new client. When I first sit down with a new client, I go over the whole loan process and transaction. During this time, I make sure they understanc that there is no such thing as a "no-cost" loan; one way or another, they will pay for their loan because lenders and their mortgage professionals are not in the business of giving away loans and working for free.
I go on to explain that they can pay LO fees upfront, which will give them a lower rate but increase their closing costs a little (most of my clients are FHA buyers so 1% is the max LO they will pay) or they can pay YSP, which will increase their rate a little but lower their upfront closing costs. By the end of the consultation, my clients and I have decided what is the best option for them.
By conducting my consultation in this manner, not only have I educated my clients on the loan process but if they choose to shop me, hopefully, I have also educated them on how to be better shoppers. Granted, there will always be those mortgage people (I simply refuse to call them professionals) who will lie, cheat and steal to get a loan in their pipeline. As Hector points out though, those people are transactional and not only will they probably never establish a referral business but they will probably never experience repeat business either.
Elizabeth - do you have any recommendations on how to approach this with lenders. At this point I'm not sure any of our local lenders will guarantee anything, however I'd like to find a few who will. Should I set up meetings with them and feel them out on this topic?
Elizabeth, I'm having the same problem right now with a lender. I represent the seller on an REO and we have jumped through multiple hoops that the loan officer has thrown to us. We've written multiple amendments extending the closing date and given him many pages of proof-of-ownership. Funding was finally approved and we were supposed to close 5 days ago. On the rescheduled closing day, we were told that the lender lost its FHA accreditation!
Through it all, the buyer has blamed everyone except himself and the loan officer. Realtors don't recommend lenders because they are "nice" - we recommend good lenders because they are good!
Elizabeth,
Just a quick comment and question, as I do not want to take over your post.
As the other loan officers stated, we need to get paid also. They, much like myself, explain to the clients about how we get paid (it's a mandatory disclosure) and collectively decide what is the best way to structure the transaction. There are caps on how much I can make and the lenders are doing their best to keep the YSPs low.
I'm just not sure what you mean by "YSP is controversial" in your post. In what way?
Just out of curiosity, what do you and the rest of the group feel is a fair amount for a loan officer to get paid? If the buyer's and seller's agents are splitting 6-7%, is it inappropriate for the LO to split 3-3.5% with their broker? If the LO has worked extra hard with the buyer, say improving their credit so that they could purchase, is 4-5% out of the question?
Maybe this would be a better post in an online survey area (?), so please forgive me if this is not the right place. I am just curious what others think.
Thanks,
Scott
Elizabeth - Scott poses an excellent question. I too have often been puzzled about how Realtors will question why I may charge a client (either LO or YSP) when they themselves are getting 2.5%-3% (2x-3x more than what I charge). Whenever that has happened to me, it's always made feel like they (the Realtors) think that me and my broker's time, energy and services are not as valuable or as worthy as theirs.
Granted, not all Realtors feel that mortgage professionals don't deserve to paid a fair commission, but I've met enough that it makes me wonder why they don't think I deserve to paid a decent commission.
On another note, I have never, ever questioned why a Realtor gets paid the commissions they do and have always defended the value of a full-service Realtor over a discount agent.
Hi Jessica; My advice is just ask. You will find lender who will guarantee and those who won't.
Donne: I, too, have often been puzzled about how Realtors will question why I may charge a client (either LO or YSP) when they themselves are getting 2.5%-3% (2x-3x more than what I charge). Whenever that has happened to me, it's always made feel like they (the Realtors) think that me and my broker's time, energy and services are not as valuable or as worthy as theirs.
Cover my eyes because they are in pain from this. The main thing is an agent's commission comes from the sales price. Whether a seller pays a commission or whether the seller does not, does not alter the sales price. You can't say that about a mortgage brokers' rate. What a mortgage broker is paid always affects the rate or cost. Mortgage loans and real estate sales are two different animals. You're trying to compare apples to oranges. Square pegs don't fit in round holes.
I couldn't imagine writing loans just as a loan broker couldn't imagine selling real estate. Oh, wait, some of them do have that thought in their wildest dreams, and their clients often pay the price.
Scott: If you don't know how YSP is controversial, you haven't been following the reasons or suggested changes to HUD requirements and why consumer-oriented bodies want to make it transparent. Apparently some think a consumer has the right to know they are paying a higher interest rate due to YSP, and some don't.
I like Fred. He doesn't wait until closing to disclose. Many mortgage brokers do, when it's too late to cancel.
I wish more mortgage brokers would disclose, because it leaves me in the position of explaining at closing that the buyer is paying a higher rate interest rate because their mortgage broker is receiving a bonus, and I'd rather not have to explain it.
BOTTOM LINE: DISCLOSE.
Elizabeth - I apologize for any confusion. It's late and sometimes putting my thoughts into words doesn't always come out the way I wanted them to.
The point I was trying to make is that commissions paid to the Realtor's in a real estate transaction are paid for selling the home and the commissions paid to a mortgage professional in a transaction are paid for selling a loan product, both being just as vital to the transaction and more times than not, one couldn't exist without the other (except in cash deals).
While I am well aware that these are apples and oranges, the services and products a licensed mortgage professional and licensed mortgage broker and/or lender provides are just as valuable and worthy as the services of a Realtor.
While I would never question the 2.5%-3% a Realtor will make on a transacton, if they've done their job to the satisfaction of everyone in the transaction, then they've earned it. Why then do they feel it's necessary to question the 1%-1.25% that I may make on the same transaction, if I've performed my job to the satisfaction of everyone involved in the transaction. My broker and I have earned it.
BTW: I have always considered it part of my job to disclose what I and PacFin are charging (LO/YSP) for the loan. As I've mentioned before, I make it a part of my initial consultation so that my clients know from the get go what our products and services are worth. I would never let my client show up at COE with no idea what they were paying for, why and how much. I wouldn't have a referral business or repeat business if I operated that way.
Elizabeth,
I appreciate you taking the time to respond to my post. I can see that this is a hot topic, so I will apologize in advance if I offend anyone, which I certainly do not intend to do.
You stated "What a mortgage broker is paid always affects the rate or cost." and that "Mortgage loans and real estate sales are two different animals". For the most part, I agree. However, for comparison sake, let's entertain this thought for a second.
A seller in the State of California is selling their home with an asking price of $315,000. A buyer makes them an offer of $300,000 (which I would consider fair) and they turn it down because they would only net $279,000 after the real estate commissions (not including escrow charges, etc.). Had they not had to pay the 7% in commissions, they may have taken the offer, but now they ask for more. Had they not had to pay that amount in commissions, they could have accepted less money, meaning that the buyer may now need to pay more and end up with less equity in the home. If the concept of RESPA is to eliminate charges that add to the cost for the buyers, would this apply? Do the RE agents have to disclose how much they are making on the transaction?
My point is not to offend the Realtors, as they have a right to a fair commission for doing their job. It's to point out that the comparison is not exactly apples and oranges.
In fact, mortgage brokers have been FULLY disclosing all their compensation since 1992-including YSP. ALL of my clients know exactly how much I make on the transaction (which is generally much less than the Realtor makes). Other originators, such as banks and lenders, who receive the exact same type of indirect compensation, but call it by a different name, do not disclose their total compensation. Since you referred to the "bank" in your original post, I can only assume that they were brokering the loan and that is why the YSP was disclosed, as otherwise you and the borrower would not have known how much they made.
With respect to YSP being controversial, that may be true in some eyes. However, it is beneficial, and it's not just brokers making this claim. In 1999 and again in 2001, HUD stated this form of compensation was legal and provided a benefit to consumers. Both the FTC, who's primary function is consumer protection and the Fed, conducted consumer testing, with the results supporting the broker's position. In other words, the majority of the consumers feel that YSP is appropriate and beneficial to them.
I am guessing that much of the controversy you allude to was when Chairman Barney Frank and the House Financial Services Committee were discussing HR 3915 which, for all intents and purposes, could have eliminated YSP. While that part was dropped, it did include a Nationwide Mortgage Licensing database and background checks - both long overdue in my opinion, as the bad players in this industry could move from state to state and continue to rip the consumers off.
I suppose what it really comes down to is that we need to respect each others positions and work together to provide the greatest value for the client. We should all be fairly compensated for the job that we do and we should all do a good job for that compensation. I see this as a legitimate way to get compensated, as it is, and has always been, fully disclosed and has helped us stay on a level playing field with those who do not have to disclose.
Thanks for reading.
Scott
Well said Scott. Thank you for being much better at illustrating what I so poorly couldn't. As you've indicated, in the end, we just all need to do what is best for the client, perform our jobs in the manner that is required and expected of us and respect the value and worthiness of the services that each of us brings to the transaction.
Good night. :)
Hi Donne: Thanks for chiming back in. I have no qualms with fees a mortgage broker receives. In fact, I regularly write a point into my contracts so buyers are aware they will pay a fee for that "bag o' money" they're borrowing. It's when they negotiate zero points and then are hit at the closing table with YSP -- often mortgage brokers don't attend the closing -- and I'm left having to explain it to them. I believe the mortgage broker should have explained it and disclosed it.
Hi Scott: It is true that banks aren't required to disclose the "true" cost of money but mortgage brokers do. And I suspect that's a reason that mortgage brokers are ticked off over some of the recent legislation proposals. No wonder consumers are so confused.
Your analogy, however, of a home listed at $315,000 and selling for a price you think is fair, which would net the seller less, has no bearing. The reason is a seller is not required to sell for less than list price, and the seller is fully informed of all the costs of the transaction in advance. When I take a listing, I give the seller a net sheet that reflects several scenarios, with a high and a low price, both of which include the commissions. Sellers know how much I earn and how much the buyer's agent earns.
Elizabeth- Oh how I wish we had a RESPA change and that we as a broker could tell buyers agents that they had to use our mortgage broker! I can not tell you how many deals we have lost in our listings when at the last minute the buyers are getting turned down on their loans. Then the next go around the price of the listing is less because the market went down and the next offer is even lower. It is so frustrating.
Elizabeth - I think its disappointing that more mortgage brokers do not attend closings. I try to attend all purchase closings unless there was an emergency, and refinance closings upon request or when time permits. If it is an out of area loan, then I make sure a company representative is there (compensated by me) to make sure that the lending side is there to answer questions. It's a shame that we play such a large role in the process and when the big day comes we are MIA.
To me its part of the service, but also a great opporunity to network with the agent and borrower to obtain referrals. If things go well, its 20-30 minutes and handshakes all around. If things go badly, you can be there to save the day. I have to say it is nice my competition not going to closings works for me, on many occasions one of the agents or attorney will mention how its rare and how impressed they are.... always good to be told that in front of clients.
I do understand where other brokers are coming from though. I have seen agents bash our fees in front of clients, even though the clients were fully aware. There was one closing where the client was bringing $500 less than on my GFE because I always am conservative... the Realtor still stopped the closing to question my fees and exclaim how much they had to bring.
This just made the buyers suspicious and was highly unprofessional. The Realtor was making 2-3x what I was and I almost felt like telling her to offer a concession if she thought it was too much. Of course I did the professional thing and explained the HUD line by line with the GFE they signed (which I always take to closing) and just never worked with the agent again. The only reason the Realtor did this (as told to me by her selected attorney afterwards) is that she always does it to seem the "hero". The best part is that the closing was in the Realtor's office, but as soon as the HUD was signed and she made her remarks she left the closing and never came back. It was her policy to hold closings in office so she could pop-in, leave and then collect her check after they left.
I am sure you have equal horror stories about mortgage brokers, we have to realize we are both professionals and stick to our area of expertise. Be an advocate for clients, but the Realtor should not be getting invovled in rate/term negotiations and lenders should stick out of real estate negotiations. Once you refer to someone, trust them to do their job and stick out. If its someone you didn't refer, try not to be involved and cause confusion with clients unless there is a legal or ethical issue.
Full disclosure and open communication are the key. Both with other professionals and clients.
Hi Elizabeth...I'm a subscriber but missed this so I was glad to see that Lenn reposted it.
Thanks for sharing your transaction with us. It is something I will use as an example for clients hesitant to use a lender suggest to them.
Kate
Great comments, Roland. Thank you. The mortgage brokers I recommend attend closings, but it seems that when the buyer chooses a different lender, that loan officer never shows up. It's highly unprofessional to slam a mortgage broker's fees at closing. However, if I felt my clients were getting ripped off, I'd pipe up. It's really none of my business what a buyer pays to obtain a loan.
Hi Kate: You can ask your mortgage broker to guarantee their rates and closing time. They don't have to agree, but if they want your business, you may be able to persuade them. It's not a big deal to pick up the phone and call the title or escrow to get fees.