How About Borrowers' Tricks?

July 8, 2000

"Yes, mortgage brokers have their "tricks of the trade", and some are rogues, but so are some borrowers…When are you going to write a column about borrowers' tricks?"

Tricks that borrowers' play that cause mortgage brokers to grind their teeth include:

Net-jumping: Many consumers use the Internet as an information resource prior to shopping for a loan through traditional channels. This makes sense. There is nothing wrong with it. Net-jumping, however, involves using the broker's time and expertise to become informed and creditworthy, then jumping to the Internet to get the loan. Here's a broker's story.

"When Jones came to me six months ago, his credit score wouldn't have qualified him to purchase a dog house. But I worked with him while he disputed his credit report with the bureaus, and negotiated with collection agencies. His credit score went from "D" to "A." While he was working with me, he learned his responsibilities as a future homeowner…Then he informed me that he was going to shop for a loan on the internet."

Brokers could protect themselves against net-jumping by charging a non-refundable fee. Few do this, however, for fear it would place them at a competitive disadvantage.

Lender-jumping: Lender jumping is similar to net-jumping, except that after using the broker’s time and expertise, and after identifying the appropriate loan and lender, the borrower goes directly to that lender.

What lender-jumpers don’t realize is that lenders quote lower prices to brokers than they offer directly to consumers because the broker assumes the cost of finding, qualifying and counseling the consumer. As a result, the lender-jumper, who wastes the broker’s time as well as his own, is as likely to get a worse deal from the lender as a better deal.

Multiple-Apping: Another borrower trick is to submit multiple applications through different brokers -- two, three or even more. All the brokers check credit, shop loan programs, and fill out the application but only one will be compensated. The others waste their time.

Borrowers who submit multiple applications also waste their own time, but the practice is evidence of how difficult it is to shop traditional mortgage channels. Borrowers typically can't obtain a complete listing of loan fees and charges until they submit an application, which encourages "shopping by application".

Lock-Jumping: Under a standard loan lock agreement, the lender and the borrower are committed to the interest rate and other specified terms. Some borrowers, however, act as though the agreement only binds the lender. If interest rates rise prior to closing, the lender is committed to the rate specified in the agreement. But if rates decline, they feel free to go to another broker and relock at a lower rate.

Borrowers who want both the benefit of a rate decline and protection against a rate increase should purchase a "cap". It allows the rate to remain locked if market rates rise, but if market rates decline the borrower can relock at a lower rate. A cap costs a little more than a straight lock.

Brokers could prevent lock-jumping by charging a lock fee credited to the borrower at closing, but forfeited if the consumer walks. Few brokers do, however. They may fear losing business to brokers who don't charge. Or they may be reluctant to charge a lock fee because they don't intend to lock the rate with the lender. Charging a fee when they are not locking with the lender would convert a deceptive practice into a fraudulent one.

Many brokers lock loans at their own risk rather than with the lender. They allow loans to "float" with the market while informing the borrower that the terms have been locked. This is a source of extra profit to brokers. They rationalize the practice on the grounds that they deliver the locked terms to the borrower even if it comes out of their pockets.

When it comes to mortgage trickery, consumers are amateurs, and the mortgage brokers who are tricksters are the pros. Instead of trying to trick a trickster, find one who isn't.

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