Bait and Switch

Unfortunately, the success of a large segment of my industry is based upon deception. Bait and switch tactics are common among this group. These companies teach their agents how to deceive, so I'll teach you how to protect yourself.

First, I want to tell you about the source of much of my information: borrowers themselves, some of whom were taken advantage of and others who backed out of a transaction when they figured out what was going on. In all cases, the intention of the lender was to deceive the borrower about what loan they might ultimately get.

The first type is the most common, where they lender quotes low rates, ones that are not accurate, attempting to induce the borrower to apply there. Let's assume that the borrower has heard 6 percent or higher from every lender called. But this one say 5.75 percent. The borrower is elated because he/she figures out that the shopping has paid off, that a better lender has been found. So they make application with this lender.

Sure enough, the loan package comes a few days later and the Good Faith Estimate and the Truth-in-Lending forms also say 5.75 percent. So they sign up, send in the money for the appraisal and look forward to getting their great deal.

Thirty days later that they find out the truth, that they are not going to get what they thought. Sometimes the lender calls after three weeks and tells them that because of some problem, they can't get that deal. Some lender use as an excuse even the most minor credit problem, one that in the real world is NOT a problem. But they tell them that the best program they are qualified for is, you guessed it, is at 6.125 or 6.25 percent.

Sometimes the borrowers don't find out the truth until they go to sign loan docs. In both cases they are out of time because of a scheduled closing of escrow. They call the lender who, magically, is not in the office and won't return their phone calls. Of course they won't. They don't want to take the abuse that will justifiably be heaped upon them. The loan agent and his company still make their commission which is not dependent upon the customer's happiness.

The way to avoid this trap is to ask the lender to send you their rate sheet. Of course, the liar doesn't want to do that because it will show them to be liars, so they will avoid it. You can also ask for a sample note that is being drawn today. They have a whole department whose job it is to draw loan docs, so they have many samples. They just have to black out the names and addresses and FAX it to you.

If your potential lender who won't do this, I'd find a new lender while you have the opportunity to do so. The truth-tellers will have no hesitancy about doing this.

The second tactic is generally used on borrowers who have credit problems or trouble documenting income. This type of lender acts like one of those rug guys in a market in the Kasbah. They start out displaying a sign saying $1,000. When you resist that offer, the $800 sign comes out, then the $600 sign, and finally, if you are skillful, the $500 sign, at which point you make the deal. What they are trying to figure out is how gullible you are.

Unfortunately, many borrowers hear 7 percent and $10,000 in closing costs and they figure out that is what they "deserve." They do not negotiate and just take it. But those who say, "I'm talking with another lender and they say it's only 6.75 percent." At that point, maybe the lender says they made a mistake and you really will get 6.5 percent. Whatever, they are really attempting to get you to may as much as they can so as to maximize their income. They aren't working with your best interests at heart. Go find another lender.

The good news is that there are a number of highly qualified, trustworthy people out there, people who will bust themselves to make sure you get the best deal you are qualified for. Go find one of them by getting referrals from friends and family.

Be careful out there.