Rob's Rant

For those of us who did not have high school Latin, "caveat emptor" in English is "buyer beware".  This attitude can be the silver lining to the cloud of our current Recession.

I was listening to NPR in my car on the way to work this morning, and the discussion was about Loan Modification.  The reporter was interviewing a fellow named Richard and discussing his mortgage, and his attempts to modify said mortgage.

Richard's mortgage had a low, low start rate ("teaser" rate) and then reset to 11%+.  OUCH.  For the past 1 1/2 years, according to the report, Richard has been attempting to modify this rate to be lower, even to the current market rate (+/- 5.5%) and thereby drop his payments back to affordability.

He had had no success, until he took his paperwork to a local non-profit for assistance.  They showed him his paperwork, which included a loan application attesting to $16,250 monthly income ($195k annually).  He stated in the report on the radio that his actual income at the time was only $37k per year ($3,083 monthly).  He also stated in the report that his Mortgage Broker lied so he could qualify for this larger loan and that he had never seen this income information before, nor were the terms of the loan explained to him. 

Let me be clear on this point before I continue: I am not hard of heart, I feel for Richard and his family.  Read on for a better idea of what to do.

My knowledge of some mortgage procedures may shed a new light on some of these circumstances, however: 

(1) Final loan papers are not signed at the Mortgage Broker or Mortgage Lender's office.  They are signed in the presence of a disinterested third party.  In Arizona the third party is an Escrow Officer; in many other states that person is an Attorney.  When someone hands you a fat stack of papers you may not understand, why would you not ask the Escrow Officer or Attorney sitting there to show you the relevant portions and ensure you understand them?  YOU ARE PAYING THAT PERSON.  S/he will likely not give you an opinion, however s/he can explain the relevant terms and conditions including interest rate, prepayment penalty, etc.  Make him/her earn his/her fee.

(2) Recall that Richard stated he had "never seen" the application showing $16,250.  This is most unlikely, as part of the documentation sent to the Escrow Officer/Attorney is a "Final Loan Application" requiring initials on every page and a Signature on page 4.  He may not have reviewed the document in sufficient detail, but he almost certainly saw it.  This application is included in the final loan package (along with Note, Mortgage/Deed of Trust, etc.) for the express purpose of ensuring the borrower sees the information at least once.

How can there possibly be a silver lining to all this?  Because I am pretty sure going forward that Richard will READ everything before he signs it, rather than simply trusting what someone else verbally tells him.  Another silver lining: YOU can learn from his difficulties.  When it comes down to brass tacks, who has more interest in the well-being of you and your family?  NOBODY.  Educate yourself so that you understand what you are getting into.  If you don't understand something.  ASK.  If you still don't understand, ASK AGAIN.  Still don't get it?  ASK SOMEONE ELSE.  Be sure you know what you are signing before you affix your signature.  Your signature attests that you fully understand what you are signing.  If this is not the case, you are signing falsely.

Ask anyone who has sat with me in a loan application.  I explain every form, and I encourage my Clients to read them.  When we are finished I give them copies of every page, and encourage them to look at them at their leisure, and call or email me with questions.  And that is just the Application, which isn't even a legally-binding document.  If you are working with a mortgage person, whether a Broker or a Bank (yes, Banks were at least as bad as Brokers in all this mess), UNDERSTAND what you are signing.

This is why I have always offered to review people's mortgage applications, good faith estimates, etc.  I offer the service for free with no obligations because even by re-originating only the people who are getting screwed by their current Bank or Broker, I can benefit myself sufficiently to always tell the truth and show potential clients their true costs.

CAVEAT EMPTOR!  Be aware of what you are signing!  DO NOT sign something you don't understand!

(FYI: the other silver lining for Richard is he got his rate dropped to 3% and can make his payment now.  So after all is said and done, this experience was truly a win-win for him, in spite of all the drama he had to go through to get there.)