Truth or Consequences

When I was growing up, in my family I learned that you didn’t tell a lie. I’m not sure what the consequences were; I didn’t even want to find out. It’s just that we were taught to tell the truth and we didn’t even consider the alternative.   It was probably the same in your home.   When asked a question, you don’t think, “Should I tell the truth or can I get something I want by telling a lie?” The result of this training is character.

Well, this will come as no surprise to you that there are some people – not a majority, thankfully, or the world would be a terrible place – who did not have the luxury of our upbringing.   When they are asked a question, the first thing they think about is which answer will profit them the most.   Unfortunately, largely because of a complete failure of regulatory oversight, compliance with laws in the mortgage business is voluntary.   It’s not meant to be that way, but that sure is the way it is.

When I get together with others in the business, I ask them, “How many loan reps lie about rates?”   No one has ever said less than 50 percent.   That’s pretty frightening when you consider that most people shop for a loan by calling lenders and asking, “What are your rates?” The conclusion we in the industry reach, and I hope you do too, is that the information gained by using that process is unreliable and a poor basis for making decisions.

I have done over 3,000 loans in my career, and have heard stories from my clients about their previous encounters with our industry. In addition, many hundreds of my readers have sent me stories also.   A common theme is that at some point in the process, the client relied on information he got from his loan rep and the information ultimately turned out to be false.  

I’m sure you’ve heard someone say, “He quoted us these great rates but when we got to closing, the rate on the documents was a lot higher.” So have we all. It’s so common it’s laughable.   Of course, by then there’s no time to start the process over again, so they sign the documents and the loan rep gets positive reinforcement for his belief that he makes more money when he lies. And because of the lack of enforcement of the laws, there are no adverse consequences.

So how do you protect yourself?   It’s pretty simple, really, but you have to be a little pushy.   You need to protect yourself by doing something different than the others who get taken advantage of. The first thing to understand is that everything in our business is in writing.   You need to see the same paperwork that the loan reps sees.   If he says, “The rate is 6 percent and 1 point,” you know he did not memorize that, he’s reading it off of a rate sheet.   You need to have him or her FAX that rate sheet to you.   The honest ones will do that. The dishonest ones won’t and they will have a hundred reasons why they won’t do it.   The reason is that if they did, you’d say, “You weren’t telling me the truth!” and they’d lose the deal.

The second moment of truth is when you lock I your loan, usually from 15 days to 45 days before closing.   When you lock in, a Lock Confirmation is created in their system and a written copy put in your file. Again, you want a copy and it should conform to what you agreed to.   If you are dealing with a mortgage broker, then you also have to confirm his or her firm’s compensation, and here’s how to do that.

When you list your house for sale, you enter into an Agency Agreement with a real estate agent that sets the offering price and other terms, including the commission that they agent’s company will earn.   That’s typically 6 percent, split between the listing and selling brokers. There is no reason at all why you can’t have a similar agreement with a mortgage broker. You want someone in your corner to represent YOUR interest, not the lender’s interest.   You can establish that relationship and fix the compensation at whatever you and the broker agree upon, say 1 point or 1.5 points depending on the difficulty of your loan and it’s size.

I use this kind of agreement with my clients because I want to have it be the basis for a trusting relationship.   That’s what you want also. Your agent will be surprised at this because I will guarantee that it’s the first time anyone ever asked them to sign such an agreement, but an honest person will have no problem with it.

The agreement I use can be found at this link 

You can copy it into your word processor and easily create your own personalized agreement. You will be delighted with the relationship that will develop and even happier with the money you will save having built the right relationship with the right person.

Be careful out there.