Brian Martucci

Is there a free lunch, or isn’t there? My last post about mortgage shopping suggested that interest rates are only a slight bit different (1/8%) from lender to lender, and that the consumer needs to focus on performance, customer service and execution more than price. But no one does, do they? And we create our own customer service problems by seeking the lowest price, and expecting the best service. It happens with mortgages, movers, furniture, contractors…you name it. We have been creating our own service and product hassles since the dawn of time.

And the reason I have chosen to write about this again is a recent client who asked me to serve a piping hot free lunch. How you ask? Read on…

These were the same clients who I was introduced to in 2003 when they bought a new house and ended up using another lender, they said the lender did a poor job, and was unable to get them qualified for as high a loan amount as he said he could. I was more accurate in what I told them they could qualify for, which is why they want to another lender who over-promised on what loan amount he could get, and also offered a lower rate. Hmmm…

In 2004 they wanted to refinance, I quoted a rate, and they of course found a better deal. If you look hard enough you can always find a better deal. One month into their refinance transaction with this other lender they told me that they were not having luck with the lender, that he had been flaky, and was not returning most calls, and they were worried if their transaction would even close. Hmmm…

Then when they got their settlement documents the loan was not what was discussed originally. Hmmm….

The lender then was not returning any calls, and they wanted to shift their business to me. As I took steps to start their loan application, they called back and said the lender finally called back and said he was sorry and had some family problems. And they wanted to give him a chance again! You might wonder how I maintained my professionalism at this point, but I did. I wished them luck.

Fast forward to 2009 and they are buying a new house, the house of their dreams in which they will spend a long time, maybe forever. This is a big deal. For the several weeks prior to signing a contract on their new home, they would call and email me on the weekend, late at night, and early in the morning. And every time I would perform and execute flawlessly, and answer questions, crunch numbers, prepare a Good Faith Estimate, prepare a Pre-Approval letter for their offer, etc. They said they loved me and they were excited to work with me on this deal. Once we were ready to proceed, I quoted a very attractive rate for a Jumbo mortgage, but they called the 800# of the lender that held their current mortgage, and got quoted 1/8% lower rate than I was offering. Hmmm…of course they did.

Now let’s stop the story. What would you do? What do you think about these people? Are they creating their own problems, again? Have they done this before, and has it gotten them into trouble before? I won’t tell you how the story ends, you create your own ending, just like in the Soprano’s!

But I think this clearly illustrates the trouble people get themselves in when they ONLY SHOP PRICE in determining their mortgage lender. STOP IT! Think about the horror stories you hear about buying a certain good or service, want to know why those horror stories happen? It’s because the providers of that service or the seller of that product are trying to cut corners and compete on price, so the service and/or product quality suffers. That is it, period, there is no other answer.

So when you call some movers to move you into your new house, after shopping all over the internet for your mortgage and suffering a delay in settlement and paying closing costs that were not what you expected; and you hear someone can move you for $1,800 when everyone else was quoting around $2,300…stop. Think, and realize your move will be a nightmare if you use the movers at $1,800. It is a certainty.

Whether a consumer is calling a bank, a mortgage banker or a mortgage broker; all mortgage providers fund their mortgages through the same sources. Because of this, mortgage rates are very close from one lender to another. I broker to over 60 banks, and have never seen rates vary by more than 1/8%.

The purpose of “advertised” rates is to get the phone to ring. I am sure no one is surprised to find out that the ad for the cheap Mercedes is not real, and that if you want all the options, powerful engine, wheels and goodies you see on the picture in the ad, the cost goes up quite a bit. But for some reason, consumers do not use the same skepticism when mortgage shopping. Somehow they believe they can get a 4.5% 30 Year Fixed Rate while the rest of the marketplace seems to be at 5% without paying anything extra or suffering from poor service. Mortgage consumers seem to want the rock bottom rate, the best service, and they want it all ASAP! I believe that the majority of the mortgage horror stories we hear about are self-inflicted and are due to the consumer “shopping” for the “lowest rate”. But did you get the best deal if your real estate settlement is delayed because the bank is not ready on time, or if the fees went up just prior to closing, or if the rate changed “because your credit score did not fit the minimum requirements”, or if you do not get your calls returned, or if the bank goes out of business prior to closing?

Mortgages are priced based on a number of variables. An accurate mortgage rate quote has to take into account your specific situation and your individual needs. There are numerous variables I will discuss, that a consumer needs to realize, when pricing a mortgage loan. There is no one-size-fits-all mortgage.

There are differences in mortgage firm business models but the net costs of processing and funding a loan are similar with all lenders. In the real world (as opposed to the world of interest rates that exists online) rates should be close to the same from one company to the next. It is pretty exceptional for a lender to be much more than 1/8% or ¼ of a discount point better than other lenders.

So how do the lenders in the newspaper or online offer rates that are below the current market rates? Some of it comes to twisting the facts, and some of it is good old fashioned SALES. Do not ever forget that when you talk to someone in the mortgage business you are talking to a SALESPERSON, not some high finance professional who is heavily regulated with a PhD and 100% integrity.

If a mortgage lender is relying on advertising to bring in prospects, they needs to have a reason for a potential buyer to call or click on their ad instead of any of the other sources to get a loan. Because mortgage ads all focus on rate, the one with the lowest posted rate will get the most phone calls. Hence the spin job known as mortgage advertising.

I’ll try and explain in a nutshell why you can’t scour the internet and expect mainstream lenders to match any rate quote you find. The list of reasons is long:

1). Most loans have so many variables, you can’t just view a rate quote online and be sure it applies to you. Rates are priced differently according to loan size, property type, credit score, occupancy type (primary residence versus investment property), how many days the rate is locked-in for (30, 45 and 60 days are common), purchase loan versus refinance loan versus cash out refinance loan, and more.

2). You have to know if the lender you are looking at is an internet lender, mortgage broker, mortgage banker, or bank. And you need to know how well staffed they are (or are not) and if they will have issue with closing the loan on time. Many mortgage providers are working with bare bones staff which will be certain to cause delay.

3). Does the loan have any prepayment penalty? Many banks will offer a lower rate, but have a prepayment penalty that they do not make clear.

4). Does the loan have any origination fee or discount points?

5). Are the quotes you are seeing current, to the day? Sometimes you even need to make sure the quote you are seeing is current to the minute. Interest rates can change daily, and usually do. Sometimes rates change 2 or 3 times daily. You cannot take the rate quote you got in line at your bank branch last week, then shop online today and find the lowest online quote, and then two days later expect the mortgage broker that your Realtor referred you to match all those quotes. Rates may have gone up, and the mortgage broker’s quote will “appear” high.

6). Did the ad give you APR rates (for a full explanation of APR see this blog: http://www.getloans.com/blog/?p=132#more-132)? Many times lenders will quote you low “rates”, but then have high APR’s, which indicates that they have higher than normal closing costs, and likely made up the low rate by charging extra fees. Most consumers are so focused on the interest rate, as if it were going to save them tens of thousands of dollars, that they take their eye off of the ball on other important details. In this case, a lender can lowball the rate by a 0.25% or so, and it seems like the best rate in town, but if they charge you an extra $500 to $1000 in fees they have easily made up the little bit of interest rate savings they have allegedly “given” you.

There is more, but its difficult to go over all the issues important to a mortgage
transaction, and all the games that a mortgage salesperson can play to quote what appears to be a lower rate. I would certainly ask for the best rate a mortgage provider can supply, but then also ask about the below, and get everything in writing:

-fees
-who will be working on your loan?
-can I directly contact everyone who works on my loan?
-number of years of experience each person working on my loan has
-turn around time for loan processing
-turn around time for underwriting
-turn around time for closing document preparation
-if any variable will change your rate quote down the line (your credit score, the state your property is in, down payment, or anything discussed in this blog post)

A Reverse Mortgage is when your house pays you back, or that is how the commercial goes. But at what cost? And is it worth it?

I have been doing some more research on these Reverse Mortgages (RM). I have been trying to condense 80 pages of data down into something manageable. Here are a few important notes I came up with:

-You can get a more detailed over view on this website at: http://www.getloans.com/loanprograms/rm/

-You have to be 62 years of age or older.

-You have to own your home free and clear, or have a relatively low mortgage.

-You may have to attend a consumer education session.

-It seems most of the interest rates charged are charged at variable loan rates over the life of the loan, although there are some fixed rate loan products.

-The costs can be heavy, as much as 5% in closing costs! (this is more than the closing costs to “buy” a home).

-They say the best reason to take a RM is when you are going to take a large sum of principal up front, or you plan to take monthly withdrawals over a very long period of time. So you need to make sure that this is a home you plan to stay in for a long time, maybe forever. You can take the loan as a line of credit, a lump sum, or monthly withdrawals.

-I think taking out a RM needs to be an absolute financial necessity, otherwise, you are only taking away from your estate and your heirs, unless that is not important to you.

After learning more about this, I am not so sure I like it. You really have to be in financial need. It’s almost like taking out an equity line against the equity in your property, but they put some fancy name on it called “Reverse Mortgage”. And I would never stick myself with being subject to the winds of change in the interest-rate markets as I get older (unless you find a good fixed rate RM).

I think the best plan of attack for some people instead of getting a RM, as much as you may not want to hear it, would be to sell the place, realize the large again, and then rollover the gain into a smaller and more manageable home as you get older. Or if you need it, roll over the proceeds into the purchase of a place in an assisted living facility. You will have achieved two things in doing that. One, you will have downsized to a smaller physical space, which I really think we all need to do as we get older. Two, if you realize the large profit that should be coming from the sale of that place, you may be able to go out and pay cash for a smaller place. If you do not realize enough to pay cash for a smaller place, it will at least be enough to pay for most of a new place.

The above is my two cents anyway, let me know what you think after doing your own research. Feel free to contact me off of this website with questions or comments.

Title insurance is insurance against defects in title to real property. It is meant to protect an owner’s or lender’s financial interest in property against loss due to title defects, liens or other matter of public record. It will defend against a lawsuit attacking the title, or reimburse the insured for the actual monetary loss incurred, up to the dollar amount of insurance provided by the policy.

Just as lenders require fire insurance and other types of insurance coverage to protect their investment, nearly all institutional lenders also require title insurance to protect their interest in the collateral of loans secured by real estate.

Title insurance differs in several respects from other types of insurance. Where most insurance is a contract where the insurer guarantees another party against a possible specific type of loss (such as an accident or death) at a future date, title insurance attempts to detect, prevent, and eliminate risks and losses caused by title problems which have their source in past events. Title companies attempt to achieve this by searching public records to develop and document the chain of title and to detect whether there are any adverse claims on the subject property. If liens or encumbrances are found, the insurer may take steps to fix them (for example, by obtaining a release of an old mortgage or deed of trust that has been paid off) before issuing the title policy.

Standardized forms of title insurance exist for owners, lenders, and for construction loans.

The owner’s policy insures a purchaser that the title to the property is free from defects (liens and encumbrances), except those which are listed as exceptions in the policy. It covers losses and damages suffered if the title is unmarketable (i.e., if the title can not be legally sold and conveyed to another party or if the property is “unmarketable”), for example if an interest in the property is found to belong to someone else, if there is no access to the land, or if there is some other defect on the title. The policy also contains various standard exclusions to coverage and also specific exceptions to coverage, based on documents that have been recorded against the property at some point in the past, that the title company is unwilling to insure.

The policy limits of the owner’s policy is typically the purchase price paid for the property. Consumers should inquire about the cost of title insurance as soon as possible. Title insurance coverage lasts as long as the insured retains an interest in the land insured and typically no additional premium is paid after the policy is issued.

The lender’s policy is separate from the owner’s policy. The lender’s policy protects the lender for the amount of money lent against the property. When you get a mortgage it is mandatory to get a ‘lender’s policy’ but its only optional to get an ‘owner’s policy.’ Coverage under the lender’s policy lasts as long as the loan secured by the mortgage or deed of trust has a balance. The title insurer’s risk under a lender’s policy is generally less than that of an owner’s policy; as a result, insurers typically charge lower premiums for a lender’s policy than would be charged for the same dollar amount of coverage on an owner’s policy.

In many states, separate policies exist for construction loans.

In the United States, the American Land Title Association (ALTA) is a national trade association of title insurers. ALTA has created standard forms of title insurance policy “jackets” (standard terms and conditions) for Owner’s, Lender’s and Construction Loan policies. ALTA forms are used in most, but not all, U.S. states. ALTA also offers special endorsement forms for the various policies; endorsements amend and typically broaden the coverage given under a basic title insurance policy. ALTA does not issue title insurance; they provide the policy forms that title insurers issue.

Title insurance is extremely important when purchasing a house or piece of property. Yet many consumers are unsure about what title insurance is and what it protects against. Here are some answers to the more common questions about title insurance.

* How Am I Protected?
* I’m refinancing, why do I need new title insurance?
* I’m buying a newly built home, do I need title insurance?

How Am I Protected?

In order to issue title insurance, the title company must search public land records for matters affecting that title. Many search the “chain” of title back 50 years. Twenty-five percent of title searches find a title problem that is fixed before the insurance is issued. Some examples of items that can cause a problem are: deeds, wills and trust that contain improper information; outstanding judgments or tax liens against the property; and easements. Title companies fix the problems then issue the title insurance.

Occasionally, in spite of an exhaustive title search, hidden hazards can emerge after closing. Things such as mistakes in the public record, previously undisclosed heirs claiming to own the property; or forged deeds could cloud the title. Owner’s title insurance offers financial protection against these by negotiating with third-parties, and paying claims and the legal fees involved in defending the title.
Refinancing.

When you refinance you are obtaining a new loan, even if you stay with your original lender. Your lender will require lender’s title insurance to protect their investment in the property. You will not need to purchase a new owner’s title policy; the one you bought at closing is good for as long as you and your heirs have an interest in the property. So you may end up getting the existing title policy “re-issued”, in which you case you would pay a much lower reissue rate.

Even if you recently purchased or refinanced your home, there are some problems that could arise with the title. For instance, you might have incurred a mechanics lien from a contractor who claims he/she has not been paid. Or you might have a judgment placed on your house due to unpaid taxes, homeowner dues, or child support for instance. The lender needs reassurance that the title to the property they are financing is clear.

If it has been no more than 10 years since you bought your house or refinanced, ask for a reissue or discount rate. They are not available in every state, and you might have to meet some criteria to be eligible, so be sure to ask.

I’m buying a newly built home, do I need title insurance?

Construction of a new home raises special title problems for the lender and owner. You may think you are the first owner when constructing a home on a purchased lot. However, there were most likely many prior owners of the unimproved land. A title search will uncover any existing liens and a survey will determine the boundaries of the property being purchased. In addition, builders routinely fail to pay subcontractors and suppliers. This could result in the subcontractor or supplier placing a lien on your property. Again, lenders want to be sure the property has clear title, and they are insuring the correct property. Purchasing owner’s title insurance will protect you against these potential problems and pay for any legal fees involved in defending a claim.

There are a lot of questions about refinancing, or at least there should be. The questions a consumer should be asking of a mortgage professional are:

1. What are the closing costs I have to spend to refinance?
2. Can I finance those costs into the new loan amount?
3. How much would I save by refinancing?
4. How long has the mortgage firm been licensed?
5. How long has the individual mortgage professional been licensed? And how long have they been with their current firm?
6. If you are being offered a “no closing cost” loan, are the costs simply being built into the rate so that you are paying simply paying a higher rate in trade for no costs?
7. What happens if your appraisal comes in lower than expected?
8. Will you be required to pay mortgage insurance?
9. If you have mortgage insurance on your current loan can you drop it?
10. How long is the interest rate locked-in for, and what is the turn around time on loan processing, underwriting, and loan document preparation?

And the questions that you “should” be asked by a mortgage professional are:

1. When did you buy the home?
2. What is the current rate on the 1st trust mortgage?
3. Do you have a 2nd trust/equity line, and if so at what rate?
4. Have you drawn on the equity line in the last 12 months, and if so how much?
5. What did you originally pay for the home?
6. What do you believe the home to be “realistically” worth now?
7. What is the balance of the loan amount/s?
8. Is this home your primary residence, a rental property, or a vacation home?
9. What is the property address?
10. What type of property is it, condo, single family detached, rowhome, 2 unit, 3 unit, or 4 unit?

If ALL of the above questions are not being asked of you, and if you are not asking the above questions, there is a strong chance you may not get what you bargained for!

And, you should read this blog post about whether or not you even should refinance in the first place: http://www.getloans.com/blog/?p=335#more-335.