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Monday, April 10, 2006

The Top Ten Ways That Certain Mortgage Companies Overcharge or Otherwise Abuse Mortgage Consumers

Here's a top ten list that you need to print out and post to your cork board or kitchen refrigerator: the top ten ways that certain mortgage companies overcharge or otherwise abuse mortgage consumers. An excellent checklist, produced by the Homeowner's Consumer Center and the National Mortgage Complaint Center, a list that anyone in the market for a mortgage shouldn't be without.

Here's the list, which was a part of today's America's Watchdog press release:

"The Homeowner's Consumer Center and its partner the National Mortgage Complaint Center have just released the results of their survey of common mortgage fee overcharges/mortgage lender abuse for 2006. The survey includes mortgage transactions in every state and region of the United States. This survey was compiled as a resource for consumers wondering what mortgage fees are appropriate, and what fees are not. The intent of the survey is to give homeowners or potential homebuyers, mortgage fee bench marks and or items to be aware of when financing or refinancing a home. The top ten areas of overcharging or mortgage borrower abuse are as follows:

  1. Yield Spread Premiums. By far the most abusive or the most poorly understood mortgage fee in the United States is the 'yield spread premium', also called a 'YSP.' A 'yield spread premium' should not be confused with "points" or other fees a mortgage lender might charge a consumer. This charge or fee is a 'rebate', or a kickback the mortgage firm or lender receives for increasing a borrowers interest rate over the best rate available for the borrower. In 95%+ of the cases we surveyed, the borrower never understood what it was, or that it translates into a higher monthly mortgage payment for the borrower.

    Banks and or mortgage bankers have no federal requirement to disclose 'yield spread premiums' to borrowers, even though they are getting them too. Based on our interviews, over 85%+ of all Americans pay a higher monthly mortgage payment because a bank or mortgage broker failed to explain yield spreads or rebate pricing to an unsuspecting consumer/borrower.

  2. This year over 1,000,000+ US homeowners will be forced to use the over priced mortgage product of a homebuilder. Seeing it as a way to make more money, regional and national homebuilders have become 'mortgage bankers.' From outlandish processing fees, application fees, undisclosed 'yield spread premiums', or even survey fees, frequently homebuilders hold borrowers hostage by saying take our mortgage product or you don't get the house. Or homebuilders use the lure of a credit or upgrade to justify interest rates that might be as much as a full percentage point over market for the typical borrower. What the borrower does not realize is that the difference between 6% and 7% on a thirty year fixed mortgage might be hundreds of dollars more per month in the form of their monthly mortgage payment. When buying a new home from a homebuilder, the consumer should seek a second opinion from a highly regarded bank or mortgage broker in order to see if they are being treated fairly.

  3. Title Insurance: In over 70% of all mortgages surveyed, the title company was charging the consumer $100 to $300 for a 'title search' or 'title exam.' In 50+% of our sample, the title insurance companies were charging for a 'search' and 'exam' at the same time (which is impossible because they are the same thing). Based on the fact that to issue title insurance to a homeowner, the title company has to 'search' the title anyway, we consider ALL title search, title exam or title binder fees to be junk mortgage fees. Important Note: If you are refinancing your existing home loan, call your existing title insurance company and ask for the 'reinsurance' rate. In most states title insurance companies are required to give homeowners refinancing their mortgage a discount if you use their service again.

  4. In our second year of compiling our survey, we are still finding that 70%+ of all US borrowers are not getting their Good Faith Estimate and or Truth in Lending Statement within three business days of making application for a home loan. In 60+% of the cases we examined, the borrowers 'Good Faith Estimate' had changed by the time the borrower arrived at the closing table. Extra fees or costs had been added to the final HUD-1 Settlement Statement. Even more disturbing, in 40+% of the cases we examined, borrowers had their interest rate increased over the initial offer in the Good Faith Estimate or in what the lender/broker told them the interest rate would be. This is also known as bait & switch.

    When making application for a home loan borrowers should insist on an accurate illustration of costs. The borrower should also request in writing if the mortgage has a pre-payment penalty associated with it. Unfortunately in its present form the Federal Truth in Lending Statement only has a small check box where it says 'the loan may ( ) may not ( ) have a prepayment penalty.' The US Department of Housing & Urban Development needs to change this loop-hole to 'does have a prepayment penalty' ( ) or 'Does not have a prepayment penalty' ( ). Millions of unsuspecting US homeowners have been ripped off with poorly disclosed mortgage prepayment penalties. Congress & the Bush Administration need to require this change immediately.

  5. Loan Application Fees: If you are paying a broker or a lender a 'loan origination fee' (which can be 1% or 2% of the loan amount), why should you also have to pay an application fee? 47% of the 7500+ mortgages we inspected had an 'application fee' ranging in price from $50 to $1000. We consider 'loan application fees' to be junk mortgage fees, and we would suggest the consumer not pay them.

  6. Credit reports for an individual cost about $10 or for a couple cost about $20. Yet in the 7500+ transactions we inspected we discovered that the average loan had a $38 credit report fee on it. Don't pay more than $20 for a couple or $10 for a single person unless the broker or lender can show you an actual bill.

  7. Mortgage Administration Fee: What is a mortgage administration fee? Why should you have to pay it? If your loan comes with an 'origination fee' and a 'processing fee' we see no purpose for a 'mortgage administration fee' except as one more excuse to gouge a consumer. We found 'administration fees' on 59% of all mortgages we inspected ranging in price from $25 to $2000. We consider 'mortgage administration fees' to be junk mortgage fees.

  8. Document Preparation Fees: If you loan has a 'origination fee' or a 'processing fee' we see no purpose in paying a "document preparation fee' or 'doc prep fee'. We found document preparation fees on 50+% of the transactions we inspected ranging from $20 to $600. We consider all document preparation (Doc Prep) fees to be junk mortgage fees. Note: Title companies will frequently try to add 'document preparation fees' to their charges. We consider ALL title or closing related 'document preparation fees' (doc prep) to be junk mortgage fees.

  9. Loan Discounts: With increasing interest rates we have seen an increase in 'loan discount fees.' In our sample, 15% of all mortgages came with a 'discount fee.' The problem: In none of these transactions did we see any evidence of a 'discount' or a lower interest rate. If a lender is trying to charge you 'discount points' or a discount, please have them put in writing what your par interest rate is (the best available mortgage interest rate for your credit score and financial setting) and what exactly you are getting for your 'discount.'

  10. TV Mortgage Pitch-Men: Don't let 20,000 bankers kill themselves for the right to give you a mortgage. It's like your mom used to tell you, 'if it sounds too good to be true, it is too good to be true.' We are attempting to list who we think are the best Internet or national mortgage lenders on our Homeowners Consumer Center web site. Until then, we would strongly advise you to only do business with mortgage firms that have a reputation for integrity and honesty.

We at the Homeowner's Consumer Center believe that homeownership is the American Dream and our goal and purpose is to educate you, so that you can protect your dream and your asset. We are not opposed to profit, in fact we believe that an honest days work, deserves an honest days pay. We are however opposed to profits at any cost and we are opposed to deceiving a homeowner to make a quick buck. The Homeowners consumer center is devoted to the idea of transparent business dealings where the consumer understands what she, he or they are getting

We have designed the Homeowner' Consumer Center to help first time homeowners, current homeowners, homeowners wanting to know more about mortgages, buying or selling real estate, home insurance or other important topics. We invite you to visit our site, and to please tell your friends, family & co-workers about us."

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