Clark Howard You Were Wrong ... Again

Clark Howard I think you do a great service to the public at large when exposing scams and ripoffs*. Still I'm calling you out Clark and I hope you actually take this to heart - this time. Not to tear you down or make you look bad but to keep you from confusing your listeners with (a) incorrect information and (b) misapplied information.

For those of you who don't know Clark he apparently was quite a successful travel agent (made millions and millions so I have heard) back in the 70s and 80s and is now a syndicated radio personality. I neither dislike Clark nor wish any malice upon him and hope he continues to enjoy success in whatever he does. The trouble is he knows just about enough about mortgages to screw you up if you trust him at his every word. He knows most of the words and the correct correct definition of them but invariably I cringe before he finishes talking about them. Why should I have expected today to be any different? Back when I did a lot of radio advertising I constantly had to battle the "but Clark Howard says ..." callers. What a nightmare that could be. Clark likely has no idea of the confused aftermath he sometimes causes for his listeners who actually believe he knows more about the inner workings of home finance than we seasoned, trained and educated professionals who may have closed thousands of loans.

The call in to his show on Tuesday started out innocently enough and I was driving back to my office, where I work as a mortgage banker which I have done for the last umpteen years, so I listened. I did not hear the caller's question but I heard Clark say something similar to, "then you will have 25% of your debt at over 7% interest and that's not good". Agreeable - that probably is not good but I never give financial opinion without knowing the full story. That scenario may be good if she currently has 75% of her debt at 25% interest, know what I mean?

Then Clark started talking about "no cost mortgages". He even said, "many lenders will tell you there is no such thing" but goes on to talk about them as if they really exist. He must not remember the FTC cracking down on those ads which came even from giants like Countrywide for advertising "no cost loans". I'm assuming he has read my blogs in the past as I continue to tell the truth "there is no such thing as a no cost loan" or "there are closing costs and you pay for them".

Clark, there are no "no cost" or "zero cost" loans. They don't exist on the real planet where Jane and John Homeowner depend on the services of dependable mortgage professionals. If those are no cost loans then I should be able to sell you a $100 suit for $500 and tell you the shoes I included are "no cost".

Sure, the broker or lender can make it so that the borrower does not have to bring any money to the closing table and if the home owner only plans to be in that home or that loan for about five years or less it may make sense. But they are not "no cost loans". They have a cost and that cost should be explained in detail to the borrower and the alternative comparisons demonstrated. An informed and properly educated consumer is our best client.

The other thing Clark was wrong regarding (that made me actually look at my phone and think of calling in as though I had an ice cube's chance in getting through to him) was very misleading and will cause someone harm if they believe it. He was doing the right thing about talking about the power of 5/1 ARMS. Then he should have hushed because he started dancing in territory he had no business in - talking about rates and closing costs at particular lenders.

In his defense he probably just looked at some website to get the rate for a 5/1 ARM and he said "ING has it for 4% and there closing costs are generally lower than the other lenders who offer the 5/1 ARM." That was more than he had business or knowledge to say and I challenge him to present actual figures to back it up. Also, if you think ING is offering a good price send me your GFE and TIL and let's see just how good it is.

First of all the rate changes all day every day. I quoted 4% on a 5/1 ARM on Monday and it went up to 4.25% by mid-day on Tuesday and back down to 4.125% by mid-afternoon. PLUS Clark has no idea what anyone's rate is because it is based on many things including credit score, loan amount, appraised value of the property, type of property, geographic location of the property, term of the loan, purpose of the loan, and more.So, his statement is misguided and quite possible dangerous.

When we as lenders, bankers or brokers advertise a rate we are required, by federal law, to also tell the APR of the rate and the terms of the loan in an equal presentation of the rate. In other words if we say 4% and the APR is 4.285% we are required to say it in the same voice and publish it in the same font on the same line. What Clark doesn't get, and obviously doesn't care about, is you hearing him say "4%" and you automatically assume you're qualified for it and it applies to the loan you are seeking. Then you wear some poor loan officer out arguing with her because your rate is 5.125% (or whatever) but you stick to it that Clark Howard Said ... like he's some financial god or something. He's not. HE'S A RADIO SHOW GUY. He has no known formal education or experience in mortgages, okay?

He continuing digging a trap by saying ING's closing costs are "two to three thousand dollars lower than their competitors". I wish I had that noisy alarm he plays when he does his scam alert. Do you know sometimes closing costs are not even two thousand dollars on a loan? In fact many times the total closing costs to the lender are much less than two thousand dollars especially on loans under $150,000. So that's a BIG RED FLAG.

What Clark gives is neither rock solid professional advice nor accurate commentary. He's like other radio show/journalists who have dabbled in tertiary understanding of mortgage finance and real estate who should offer the disclaimer that their information is basically not much better than (or as good) bar-room chat. What Clark did on Tuesday is not unlike what Clark has done many times over the years and that was quote an interest rate and insinuate that interest rate was available in conjunction with a "no cost loan". Wrong on almost every case. When you want the truth and accurate information turn off the radio, get away from the misleading commercials and call me on my cell at 678-439-8683 (Clark you can call me too. I don't dislike you. Come buy my brunch and we'll talk about golf. My office is on Johnson Ferry.)

*I think Clark Howard does a tremendous amount of good for people by exposing scams and ripoff and giving great travel advice. I also know I have wasted hundreds of hours over the years re-educating people from what they have heard from Clark and other people like him who really do not need to be quoting rates and closing costs so freely.