Mortgage Confidential: What You Need to Know That Your Lender Won't Tell You

241 Pages·2010·3.363 MB·English

by  David Reed

MORTGAGE
C O N F I D E N T I A L
What You Need to Know That
Your Lender Won’t Tell You
S E C O N D E D I T I O N
David Reed
AmericanManagementAssociation
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LibraryofCongressCataloging-in-PublicationData
Reed,David(CarlDavid),1957-
Mortgageconfidential:whatyouneedtoknowthatyourlenderwon’ttellyou/
DavidReed.—2nded.
p. cm.
Includesindex.
ISBN-13:978-0-8144-1543-6
ISBN-10:0-8144-1543-1
1.Mortgageloans. I.Title.
HG2040.15.R443 2010
332.7(cid:1)2—dc22
2010009595
(cid:2)2010DavidReed.
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To the loves of my life, my children:
Olivia, Benton, and Carter
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Contents
Introduction 1
CHAPTER1
WhereMortgageLoansReallyComeFrom 4
CHAPTER2
TheMortgageLoanProcess 36
CHAPTER3
RiskElements 59
CHAPTER4
ClosingCosts 77
CHAPTER5
InterestRates 97
CHAPTER6
Credit 128
CHAPTER7
LoanChoices 149
CHAPTER8
Refinancing 169
CHAPTER9
BuyingandBuildingNew 188
v
vi CONTENTS
APPENDIX
PaymentTables 205
Glossary 212
Index 225
Introduction
Themortgageprocessisextremelyconfusing.Besidesthefactthatthere
arelots ofterms bandiedabout that arenotused anywhereother thanin
homeloans,therearesodarnedmanypeopleinvolvedinthetransaction.
And these people have their own vocabulary. If you don’t know what
they’retalkingabout,youaremoresusceptibletofallingforthingslike:
Misleadingmarketing
Incomparableratequotes
Bait-and-switchtactics
This is not to say that all lenders are crooks. Nor are all loan officers
out to get you. Far from it. It’s just that because the mortgage process is
so bewildering and can happen so quickly, it’s hard to catch up, much
less understand the entire process. Loans can be very complicated—so
complicated, in fact, that even the loan officers who are explaining them
toyoudon’talwaysfullyunderstandthem.
The average loan officer might close 80 loans per year. That’s a lot.
But you mightbuy only two orthree houses in yourentire lifetime. That
meansthatyourloanofficerdoesonaroutinebasiswhatyoudoonvery,
veryrareoccasions.
That’s no different from other occupations. Anyone can have a
unique specialty or trade. Certainly doctors and lawyers have their own
protocols, terminology, and business practices. And so do mechanics.
1
2 MORTGAGE CONFIDENTIAL
And artists. And plumbers. In business life, everyone has something
that’suniquetoherindustry.
Thedifferenceisthatwhileamistakewithagardenermightcostyou
fifty bucks for a new rosebush, a mistake on an interest rate could cost
youthousandsofdollars.Orqualifyingforthewrongmortgageloancould
meanthatyou’reinoveryourhead,whichcouldcostyouyourhome.You
cangetanewrosebush.Youcan’teraseaforeclosure,andit’sdifficultto
erase a bad mistake when it comes to a mortgage loan. That’s why you
need to know insider information—to protect yourself from costly mis-
takesandunethicalloanofficers.
Gotoanybookstoreand perusethebooksonmortgages.Howmany
of them were written by loan officers? Five? Two? One? Most home loan
books are written by columnists or authors who have never filled out a
homeloanapplicationotherthantheirown.
They haven’t compared rate sheets from one lender to the next. Or
satdownandobjectivelycomparedoneloanprogramwithanotheratthe
behestofanewloanapplicant.
I have. Not only do I write regular columns about home loans, but I
have written several books specifically about mortgages. Mortgage Confi-
dential now unveils information that consumers do not commonly know
sothattheycandecidewhat’srightforthem.Notonlythat,butMortgage
Confidential also pulls back the curtain on various loan officer practices
thatonlythetrainedeyecanidentify.
I’veseenalmosteverysituation imaginable.I’veseenpeopleattempt
to commit loan fraud—consumers and loan officers alike. I’ve watched
theinterest-ratemarketsshake,rattle,androllthroughvariousratehikes
andratecuts.
EverysooftenI’llreadamortgagecolumninapopularnewspaperor
go online and look at what other people are writing about home loans.
Now and then I’ll read something and yell out loud, ‘‘That’s wrong! You
don’tknowwhatyou’retalkingabout!’’
Thethingaboutreadingsomethingthat’sbeenprinted,whetheritbe
in a newspaper column, in a magazine, or in a book, is that the reader
automatically assumes that what has been printed is correct. That’s not
INTRODUCTION 3
the case. And that’s why those who aren’t in the mortgage industry or
thosewhojustcommentaboutitleavethemselvesopentoerror.
There are a lot of assumptions about mortgage financing that have
reachedurbanmythstatus.
Don’t refinance your loan unless the rate is 2 percent below your
currentone.Wrong.
Youneedperfectcredittogetamortgage.Wrong.
Youcan’tgetaloanuntilyourbankruptcyissevenyearsold.Wrong.
You can’t get a loan until your bankruptcy is two years old. Wrong
again.
Youneed20percentdowntogetamortgage.Wrong.
TheFedcontrolsyourinterestrate.Wrong.
Andon,andon,andon.
Thisbookwilldebunkallthesemythsandmanymore.Armyourself
withinformation,andyouwon’tgettaken.Readon.