When a Buyer Insists on Using the Wrong Mortgage Company, what do you do ?
It has happened before. A buyer hooks up with a mortgage company, typically through Lending Tree or a referral from a trusted "friend". And instead of having a smooth mortgage process, it is nothing but...
We always recommend that our buyers use a mortgage pro that we have a relationship with, someone who is an expert that will go over every aspect of the mortgage process, show up to settlement and communicate closing costs upfront - honestly and truthfully.
In this case, the buyer still wanted to use her friend's recommendation. When we received the good faith estimate, we saw 5 points (over $8,000 of closing costs) and recommended "Run !" to the buyer . Typically at this point, the buyer follows our advice and we save them thousands of dollars, sometimes tens of thousand of dollars (with a better interest rate over 30 years) and you feel like a hero ! (Actually, you are a hero !) But what do you do when that does not happen ? What do you do when the buyer insists on using the mortgage company and pay the excessive fees and interest rate ? Or they believed they had "it worked out" with their mortgage company.
So in the course of not going on a rant and being positive in the big picture, I think we all can learn something from the following experience:
We had a client buying a property in Philadelphia who was sold on using "her friend's mortgage company" from the beginning. The buyer was from the tri-state area and felt more comfortable using this mortgage broker from the same state (outside of Philadelphia) who was a referral from a trusted friend.
Okay, that is fine. We do our due diligence and find out that this mortgage broker refuses to talk to us from Day 1 and will only speak to the buyer - red flag number 1 .
14 OTHER RED FLAGS:
- Not knowing the Philadelphia market - was not aware of the 4 percent transfer tax (2 percent paid by seller, 2 percent paid by buyer). If a mortgage "pro" does not know this, in my opinion, they have not done too many loans. Run !!!
- Having a "friend" in the beginning who was her consultant who recommended this mortgage company. The friend put himself out to be an expert in the field... he was not.
- Mortgage company offering a "deal" on title. (title insurance is regulated by zip code and sales price)
- Mortgage professional refusing to speak to the agents involved in the deal (will only speak to the buyer ! So much for transparency)
- BIG RED FLAG - Good faith estimate has 5 points (1 point origination fee, 2 point broker fee and other costs adding up to 2 points such as underwriting fee, application fee and so forth). This adds up on a $186,000 sales price. Also, keep in mind this is a FHA loan for a very credit-worthy buyer.
- Buyer gets it "worked out" with the mortgage company but they do not produce another good faith estimate.
- Mortgage professional issues mortgage commitment with conditions and refuses to provide an updated commitment showing that the conditions have been satisfied.
- For a FHA deal, mortgage company did not require a termite certification.
- Mortgage company does not send in mortgage package or mortgage charges until an hour before settlement.
- On the HUD-1 at settlement, there were 2 points for the mortgage broker, 1 point for origination fee and 2 points for other. Also, there was over $3,400 on the yield spread. Buyer received a rate of 5.5 percent. (So much for working it out...)
- When asked about the mortgage fees, the mortgage professional brings up the conveyancing fee as well as the real estate commission. (Not sure how the $395 conveyancing fee is a problem vs the $8,000 of mortgage closing costs, not to mention the yield spread... also, the real estate commission is paid by the seller, not sure what that has to do with the buyer's loan ? ).
- Also, when asked about the mortgage closing costs, comments received are "You do not talk to my client regarding my fees" and "I should get the prelim HUD-1 first before anyone else".
- Mortgage broker does not show up to settlement (shocker) .
- Mortgage broker brokers the deal back to a Philadelphia Mortgage broker who in turn has the loan sold to Countrywide. (maybe their could have been one or two other middle men ? )
We recommended and stressed numerous times throughout the process for the buyer to switch to a different mortgage company but the buyer insisted on using this mortgage company. I felt bad for the client being mislead by this company and getting slammed at settlement. In order to get the deal done, we took the conveyancing fee off and the mortgage broker took $650 off (wow) and the client wrote a check for the difference which has a few hundred dollars.
Still, when I look at the settlement sheet and see that yield spread and see all those points that were paid, it makes my skin crawl and my stomach boil. In this case, we felt that we were "Almost a Hero" as we just could not convince the client to switch mortgage companies...
What do you do ?
What can you do ?
Should I look into this more ?
Add names of the mortgage folks in the blog ?
The learning experience that I have throughout this process is at the end of the day the best you can do is to make your recommendations based on your experience, knowledge and intuition. After that, it is up to the clients to decide whether to follow your recommendations or not.
As a consumer, we strongly recommend to listen to the advice and consultation of your Realtor that is representing you. They have been through it time and time again and more often that not, will make recommendations to you that will prevent these types of situations to occur.
Please share your thoughts and experiences in the comments.
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