2006 Mortgage Swindles by kippersmick


									             Mortgage Rip-Offs

The 7 Top Secret Industry Swindles & How To Avoid

             By Rob K. Blake & Terri Ewing

Copyright © Mortgage Insider Media LLC
Mortgage Rip-Offs: http://themortgageinsider.net

There is no good way to shop for a mortgage. I know you think you’re shopping but
when it comes down to the closing, you find out all your shopping was for nothing.
Things changed dramatically from start to finish. Your rate, costs, or both increased from
start to finish. You no longer get the loan program promised. Your closing was delayed.

Shopping means you get estimates for rate, costs, and points…right? This would work if
the estimates the originators provided were real. If there is one thing and one thing only
you need to learn about the mortgage business it is this; originators tell you things they
can’t deliver to sell you a loan. Notice the Good Faith Estimate is just that….an estimate.
This is the loophole all originators stand behind when what they disclosed on your
original estimate does not materialize at your closing. As you are asking about rate,
costs, and points and comparing them to other originator’s rate, costs, and points you may
as well be comparing something a 5 year old prepared for you. The numbers on the Good
Faith Estimate are total fabrication. You don’t know anything about the originator
producing these documents; therefore, you find out he or she has no integrity and would
lie to beat the offer of other originators and get your loan.

The worst part is you feel like a failure. The rules are so unclear and you were just doing
the best you could with the information you had. You called around and got all the
estimates and thought you chose the right one. Based on what however? Based on lies
they put on a piece of paper. The B.U.I.L.D.™ is going to change everything you think
about shopping for a mortgage. It changes it so much shopping becomes non existent.

You learn how to find the best of the best in the mortgage industry. Who is the best at
their job? Picking a mortgage professional on rate and costs is just silly. You don’t
know anything about them and what if they make a mistake on your largest purchase?

Now I know what you’re thinking…..I won’t get the best rate and costs because now I
have this “trusted advisor” who will take care of me blah, blah, blah. Using our system
your rate and costs are lower than any bank or other broker could touch. It’s all about
yield spread premium. This is the hidden commission maker in the mortgage business.
You don’t know if you got a good deal or not until you factor in the yield spread
premium. The broker gets a client for life and enjoys working with someone who knows
what they’re doing.

This book will identify some common scams, but to become an expert shopper The
B.U.I.L.D.™ System is the ticket. Click link and check it out.

                     Copyright © 2006 Mortgage Insider Media LLC
Mortgage Rip-Offs: http://themortgageinsider.net

Mortgage Rip-off #1

The Bait and Switch

The bait and switch is one of the oldest cons out there. Mortgage companies
originate billions of dollars of loans every month using this con. It doesn’t matter
if they are a loan officer or a broker, anyone in the mortgage industry can pull off
this scam.

It starts by offering a really low rate. I’m sure you hear the commercials or see
the ads in the paper and online….a rate so low you ask yourself, “How can they
do that?”

They can’t. But they don’t care. It gets the phone to ring, it gets folks down to
their office, and it gets online mortgage applications filled out.

Some bait and switch scams come out during the first or second call with a loan
officer. They make up some ridicules reason why you can’t have the rate that
was promised on the TV or online. So believing it was your fault, you close the
loan at the obviously higher rate they were always going to charge you in the
first place.

The more egregious bait and switch con lets you get all the way to the closing
thinking you are actually going to get that low rate. People get to the closing
table and see an outrageously higher rate (it can be as much as 2 points or
more!). Some walk away but sadly many sign because they are backed into a

This con works. Yes, they do lose loans either at the beginning or at closing.
However, the ones they do close, have so much profit jammed into the rate it still
makes them a ton of money.

They get away with this because the Good Faith Estimate is just that…an
estimate. If they made a mistake well then they’re just human right?


                   Copyright © 2006 Mortgage Insider Media LLC
Mortgage Rip-Offs: http://themortgageinsider.net

Mortgage Rip-off #2

Yield Spread Premium

Yield spread premium (and its sister service release premium) are terms for
money created by increasing a mortgage rate. You’ve heard of a discount point
right? A discount point is money paid to get a lower rate. Well, surprisingly no
one ever tells you there is another side to that scale.

Yes, discount points are interest paid up front as part of your closing costs to
lower your interest rate. But what happens as the rate goes higher?

Let’s say you have to pay one point to get 5.75%. Now what if you go up the
scale to 6.00% for example? Let’s say that rate is par which means it doesn’t
cost anything and no money is created from that rate either. Going farther up the
scale, 6.25% creates 1 point of yield spread premium or service release

If you have a $300,000 loan, a 6.25% rate creates $3,000 in that example. (1%
X $300,000) Wow, so who gets that money? Even though you are the one
paying the 6.25% rate, you never see any of that money. It goes to the mortgage
bank, company, or broker who originated your loan.

Yield spread premium is the term for the money made by increasing your rate
when brokers do it and service release premium is the term when banks do it but
it is the same thing….just different names.

There is a way to see the exact amount of yield spread premium made but only if
you use a broker and only on the closing statement. But by then it is usually too

A bank does not have to disclose its service release premium at all!

The mortgage industry has confused and tricked you into looking only at costs.
All the while, jacking up your rate to make thousands more on your loan.

If you were shopping for a mortgage and the loan officer presented you an offer

                   Copyright © 2006 Mortgage Insider Media LLC
Mortgage Rip-Offs: http://themortgageinsider.net

“A one point origination fee and also I’ll be making an additional one and a half
points by increasing your rate for a total of two and a half points on your
loan…how’s that sound?”

It sounds horrible. You would surely say “No!” and that is why they don’t tell you
about it.

By the way this is how all those no cost and no origination offers get done. You
pay for your costs by increasing your rate. And you don’t just pay for your costs;
you pay to line the pockets of the originating company. They don’t stop
increasing your rate until they get at least 2-3% or more off your loan.

                   Copyright © 2006 Mortgage Insider Media LLC
Mortgage Rip-Offs: http://themortgageinsider.net

Mortgage Rip-Off #3


Another staple in the mortgage industry’s bag of tricks is locking. Locking is
when the money is made. The money, meaning yield spread premium and
service release premium. It’s where the rubber meets the road.

Locking requires reserving the money for your loan at that rate, on that day, and
at that price whether that be a cost or a premium (money).

When you decide you want to lock, that should be it. But it isn’t. You expect
some crazy low rate because that is what they advertised.

But they can’t really lock you because that rate doesn’t exist.

So, they tell you that you are locked. And now they have to wait for the market to
get better. Remember, they told you a rate they could not deliver. That means
the market has to get a lot better for them to make all the money they plan to

You may have experienced this if your loan took an extraordinary long time to get
processed and closed.

They say they were busy. Busy all right….they were waiting for the market to
come back. But sometimes the market doesn’t come back and that is when you
show up to close and find a much higher rate than you “locked”.

Many loan officers, brokers, and the secondary markets of big companies like to
play with your money. They think they know what the market will do and are
always looking to make more.

It’s about as risky as going to Vegas but that doesn’t stop them. You call to tell
them you want to lock. They say, “sure” and tell you some rate they think will
make you happy that day. But they don’t lock you in the hopes the market gets
better and makes them more.

So, they have to watch the market to see when they want to lock you. What day
will they make the most money…that is when they lock you.

                   Copyright © 2006 Mortgage Insider Media LLC
Mortgage Rip-Offs: http://themortgageinsider.net

Well, there is a huge downside to that right? What if the market goes the other

Your loan didn’t actually get locked that day and if the market goes against them,
you will also end up at closing with a higher rate than you “locked”.

One thing you should know. If a crooked loan officer or broker makes a mistake
on your loan, they will always make it your fault. If they didn’t lock you and the
market moved against them, they won’t take less money for your loan because it
was their mistake.

You will show up to close with a higher rate…it is as simple as that.

                   Copyright © 2006 Mortgage Insider Media LLC
Mortgage Rip-Offs: http://themortgageinsider.net

Mortgage Rip-Off #4


Your credit history and score are the most important things used to determine if
you get approved for a loan. It is one of the first things a loan officer or broker
does…pulls your credit.

Surprisingly, you don’t ever see your credit report; the one the loan officer pulled.
They just relay the information back to you.

And they would have no reason to lie about what is on your credit report…would

Remember the Bait and Switch. If they promised some outrageous low rate to
get you to call then somehow they have to turn you around. They have to get
you away from that low rate and to another higher rate that makes them a lot of

One of the ways they can do that is to make up a problem on your credit report.
Most people just blindly accept the loan officer’s statement and don’t ask for a
copy of the report. Loan officers know this.

And even if you do ask for a copy, somehow it never gets to you. When a
mortgage company pulls your credit it could come back with different scores than
say if a car dealership pulls your credit.

Different types of credit warrant different scores. A mortgage requires all 3
scores for approval. You have to get the report the loan officer used. And don’t
let them email it. That kind of information shouldn’t be floating around the

Go down in person and get it, have them mail it, or do whatever it takes to get
your hands on the actual report used in your file.

If you don’t, they have the advantage.

                   Copyright © 2006 Mortgage Insider Media LLC
Mortgage Rip-Offs: http://themortgageinsider.net

Mortgage Rip-Off #5


Banks are the wolf in sheep’s clothing. They may look safe and convenient but
you have no idea what they do behind your back. They have one goal and one
goal only. They are going to take your money and if anyone or anything stands
in their way, they systematically eradicate them or it.

This is not overly dramatic.

Example #1:

In 1999, the brokers carved out a sizeable chunk of the bank’s business. At one
point, the brokers were originating 75% of the loans to the bank’s 25%. Well the
banks were not going to stand for this so they went to Capitol Hill.

With all their money (the broker’s organizations have none), they changed the
law so only brokers have to disclose the money they make from increasing your

Yield spread premium has to be disclosed by brokers but the bank’s service
release premium does not. The banks thought if borrowers saw this massive
dollar amount on the closing statement when they used a broker, they would run
back to the banks.

Well, they underestimated the resourcefulness of the brokers. Most people still
to this day have no idea their rate was increased just to put money in the broker’s
pocket even though it is on the closing statement.

Back to the drawing board for the banks.

Example #2:

In California, the phrase “no cost” was outlawed because it is hugely misleading.
Well the big boys like Countrywide, Washington Mutual, and others use this all
the time and other misleading statements.

To get around this, they switched all their mortgage divisions into banking
divisions. Mortgage companies have to abide by certain state rules. Banks don’t
like those rules so by putting their mortgage operation under the umbrella of their
banking division, they are now under FDIC rules and not mortgage rules.

                   Copyright © 2006 Mortgage Insider Media LLC
Mortgage Rip-Offs: http://themortgageinsider.net

Now they can do whatever they want when it comes to mortgages. There are no
state specific mortgage rules so they get a blanket pass to screw people.

Example #3:

Big banks are always one of the top contributors to both political parties. They
throw tons of money to each side to make sure they get their way.

Interestingly, all you hear is, “the brokers caused the foreclosures”. All the
politicians jumped on the bandwagon and blamed only the brokers for the

Are you kidding? If you actually looked at the numbers you would find the
foreclosures are being caused by builders selling overpriced houses using their
own mortgage company and banks pushing the option ARMs and other high risk

Yes the brokers sold those too. But the banks sold so many more.

If you get all the mouthpieces to bash brokers, where do borrowers go? They go
back to the bank….the wolf.

By the way, the bank’s rates are much higher. The only reason they do all this
and throw so much money toward it is to protect their profit. And a huge profit for
them is the increase in the rate.

A bank employee has no idea what the bank is making off your rate. They are
given a rate sheet that has already been artificially bumped up to build in profit
for the bank.

To get actual wholesale rate information, listen to the Real Mortgage Rate Daily.

A bank employee does not have access to wholesale rate data.

There are many different versions of banks too. There are the banks that have
your checking accounts like Wells Fargo. There are banks like Countrywide that
only do mortgages. And then there are banks that became a bank for one
reason and one reason only.

To hide their yield spread premium from you. After 1999, many big brokers
became banks to be able to hide the money made from increasing your rate.
Those guys are sneaky because they still talk the talk and walk the walk of a

                   Copyright © 2006 Mortgage Insider Media LLC
Mortgage Rip-Offs: http://themortgageinsider.net

Do not ever use a bank. You will always pay a higher rate. That is just their
business model and there is no way around it.

                  Copyright © 2006 Mortgage Insider Media LLC
Mortgage Rip-Offs: http://themortgageinsider.net

Mortgage Rip-Off #6


This is another version of the bait and switch. You are supposed to read the
disclosures but more often than not, you hear the disclosures from the loan
officer or broker.

They tell you, “there is no prepayment penalty on your loan”…you end up with a

They tell you, “your interest rate is fixed”…you end up with an adjustable rate.

The initial and final papers look daunting but really most of it is just standard
disclosing. There are only a handful of places you need to make sure say the
right thing.

But there definitely is a loophole here. There is only one little place in the initial
disclosures that states you are getting a prepayment penalty. The Good Faith
Estimate is just an estimate right? So, they can change things from start to

They can change whatever they want. If they lied to get you in the door then yes,
you will show up to the closing and look at loan terms you have never seen

And you won’t find out until the closing. Are you willing to take that chance?

There is only one way to protect yourself. Find the right mortgage provider from
the start. They will show you on the documents the answer to your question.

Remember in real estate and mortgages, unless it is in writing….it does not exist.

                    Copyright © 2006 Mortgage Insider Media LLC
Mortgage Rip-Offs: http://themortgageinsider.net

Mortgage Rip-Off #7


You can get a referral from a family member, friend, co-worker, real estate agent,
etc. But how good are these referral sources?

Let’s look at family and friends first. Usually, a loan officer or broker loves to get
a referral from a family member or a friend. This means you are not a shopper.
You already trust them because your family, friend, etc. trusts them.

If you don’t shop then they can jack up your rate even higher than they would a
normal client. And they do it with a syrupy smile and a fruit basket at closing.

You think it’s a better deal using someone your family approves of but really if
you don’t have interest rate information and the right documents, you end up
paying a higher rate than your family did!

A referral from a real estate agent is another slippery slope. One of 2 things
could happen. First, they could take money to refer you. It is against the law for
anyone to pay for a referral.

Unfortunately, that does not stop real estate agents from demanding money for
you. It happens all the time. No one is paying attention so the agents and loan
officers run wild.

Now let me ask you this. If the loan officer had to pay to get you, are they not
going to make that up somehow? Maybe like jacking up your rate even higher to
pay for the referral fee to the agent. Yes, that is exactly what happens.

Second, real estate agents and loan officers are an incestuous bunch. Since the
professions are intertwined, many people like to make money from both selling
property and originating loans.

However, you can’t do that without disclosing it. But borrowers might think they
are getting screwed if the same person sells them the home and does their
mortgage…and they are probably right.

So to get around this, owners used their husbands and wives. For example, if I
owned a real estate company, then I would make my wife the owner of my

                    Copyright © 2006 Mortgage Insider Media LLC
Mortgage Rip-Offs: http://themortgageinsider.net

mortgage company. Then I refer all my real estate clients to my mortgage
company. Excuse me…my wife’s mortgage company.

Except, you don’t know it is my wife because she has a different last name than I
do and by the way she has never even set foot in the place.

There was a real estate agent in Denver who was on the radio touting his
services, of course, but also the services of this “super fantastic” mortgage

Well the “super fantastic” mortgage professional turns out to be his wife. They
have different last names and he never tells people on the air that’s his wife.

She also had an office right next to his in his real estate company.

It all goes back to picking the right person.

                   Copyright © 2006 Mortgage Insider Media LLC
Mortgage Rip-Offs: http://themortgageinsider.net


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                   Copyright © 2006 Mortgage Insider Media LLC

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