Why Lenders Are Not Your Friends - Part 1

Copyright ฉ 2006 Ed Bagley



The next time you go borrowing, and your friendly banker smiles as you walk into his office, be aware that you may be snookered by someone not worthy of your trust. If your banker is an attractive woman, then you are even more susceptible.



I have grown over the years to appreciate a certain breed of bankers as one of the lower life forms that inhabit planet Earth. What I am about to share with you is even more true of certain mortgage brokers, secondary lenders and financial predators.



They operate as sleazy parasites under the guise of helping the least credit worthy consumers who have virtually no savvy in financial matters.



Rather than pick on the worst of this collection of lenders who will help relieve you of your money without any conscience, I have targeted bankers. Before the banking industry was deregulated there were many people who considered bankers worthy of some trust and admiration. Those days are over.



Bankers still enjoy the best reputation (such as it is) among these lenders, but they have no problem patting you on the shoulder while picking your pocket and telling you how much they have helped you.



I do not intend to indict the entire lending industry, just 95% of it. Here is an example:



My 24-year-old son wanted to refinance his first mortgage and was about to go to a leading lender in the market to look at its loan proposal. I decided to tag along because I know how lenders operate, especially when dealing with younger clients and senior citizens who have not handled the finances in their family.



His present loan had a principal balance of $123,773 with 7.458% interest at a 30-year fixed rate.



The proposed re-fi was for $134,999 with 9.9% interest (10.28% APR) at a 30-year fixed rate. The re-fi would cover the $123,773 principal balance due and provide a $10,409 home equity loan. The lender was actually smiling when he outlined what a good deal this was for my son.



I had coached my son to simply listen to the proposal, commit to nothing, take the paperwork with him, and tell the lender he would study the proposal and let the lender know if he wanted to proceed.



Once away from this flytrap I took my son to lunch, and we discussed the great deal he was given.



First, I had him look at the 3% discount fee on the Good Faith Estimate of the closing costs. (The discount fee is the amount you are paying for the privilege of getting the loan.) The discount fee was listed at $312.



What the lender was not telling him was that the 3% discount fee was figured on the $10,409 home equity loan and not on the $134,999 for the total loan which was $4,050, a slight difference of $3,748 in their favor.



If you called the lender on this discrepancy, he would probably say, "Oh, you're right, that's a mistake.



That's the figure for the home equity loan. Jeez, I'm sorry."



When the day comes to close the loan, you see the bloated figure and object, and then the lender multiplies the $134,999 loan times 3% and viola, it comes up correct. You are dazed and confused, feel under pressure, want to get this over with and sign on the dotted line. This happens every working day in America when loans are closed.



Long after you are gone, the lender is quietly snickering, counting up the additional funds he will earn, and welcoming the next dumb bunny who comes through the door while you will be stuck with making payments for 360 months on a lousy loan.



For the uninitiated, there are more real surprises at loan closings in America than when opening gifts on Christmas morning. One client of mine went to a loan closing and learned that $10,000 had been added to the loan closing costs without prior notice; he thankfully got up and left.



Always remember that for every liability you have, you are someone else's asset. For every liability-such as a mortgage, credit card, car loan or school loan-you are an employee of the company lending the money.



If you take out a 30-year mortgage loan, you have become a 30-year employee of the company which lends you the money. This is a very sobering thought when you are paying attention, as you should be. I am not talking about anything important in this article, just your financial health.



Part 2 of this article will take the financial details of the loan apart and show how not taking the loan will save my son $157,495.

Florida Mortgages

With lending rates very low, this is a good time to consider buying a home. As with any major investment, you can get the most out of a mortgage by understanding the lending market and terms used in this market. With a little effort now, you could save yourself thousands of dollars in mortgage payments over the years. Before searching for a lender, there are some general tips on mortgages you may want to consider.

Your first question is probably, how much can you afford to borrow? Lenders use a general rule of thumb that your monthly mortgage payment should not exceed 29% of your monthly gross income, before taxes or any other deductions are made.



Once you know what this figure is, you can shortlist neighborhoods with affordable houses. The next step is to get and compare mortgage rates from several lenders. This is always worth doing because lending rates vary greatly and shopping around can get you a better deal. You can also go through a mortgage broker who can help you find a lender. Ask the broker what fee is charged for the services you're considering.

For peace of mind, try to find a reputable lender.



This could be your financial institution, a mortgage company, or a government lender if you are eligible. When you get a rate quote from a lender, find out whether it is a fixed or adjustable rate, and if adjustable, whether it will be reduced if interest rates fall. Also ask about the annual percentage rate (APR), which factors in other costs like a broker's fee or points. Ask your broker or lender to carefully explain all fees involved. Other questions to ask are what the down payment is and whether private mortgage insurance is required.



Florida Mortgages provides detailed information about Florida mortgages, Florida interest only mortgages, Florida mortgage brokers and more. Florida Mortgages is affiliated with Florida Refinance Mortgage Loans.

The Number Of Mortgage Deals Dropping

Industry figures have shown that the number of new mortgage applications approved by the major banks fell again in December. British Banker's Association (BBA) members approved 42,088 new mortgage loans last month, the lowest figure that has been seen since 1997 when the data started to be collected.



Analysts think that the easiest way to solve this problem is for the Bank of England to cut its interest rates, although this proposition is meeting opposition as well as support as the market is already in turmoil and this is almost an admission of defeat.



The amount of money advanced for home purchases dropped to ฃ15.1bn, a figure last seen in September 2005, and 10% less that December 2006.



The BBA's figures are in agreement with recent data from the Council of Mortgage Lenders (CML), who said that gross lending fell 25% in December to ฃ22.6bn, the lowest monthly figure since May 2005. David Dooks, BBA's statistics director said: "Mortgage lending weakened notably in the second half of 2007 as the credit crunch impacted on banks' ability to lend, at the same time, demand for mortgages also softened in the face of increased borrowing costs and lower disposable income.



"The combination of these factors is resulting in the marked market slowdown and weakness in house prices we are now seeing," he concluded.



Among the news of reductions and falling approvals, there is some good news; the figures showed that net lending increased slightly in December, this is after redemptions and repayments have been deducted. There was also a small jump in the number of loans approved for re-mortgaging customers, with 62,771 new loans given the go ahead, compared to 59,628 in November 2007.



Although if examined more closely this is not necessarily good news, people borrowing against their property is a desperate measure, one which is likely to be caused by the credit crunch and the strict measures in place to regulate unsecured lending.



The chief UK and European economist at Global Insight, Howard Archer, commented on this, saying: "The December BBA mortgage data provide yet further evidence that housing market activity is now being substantially undermined by both stretched affordability and tightening lending practices.



This adds to the already intense pressure on the Bank of England to cut interest rates in February, and to enact significant further reductions thereafter."



Despite that fact that Britain's house prices ended 2008 5-8% higher than when the year began, prices started falling during the second half of the year, under the pressure of higher interest rates. The Bank of England held its interest rates in January 2008, predictions of a February rate cut are prevalent. However Mervyn King, the Bank's governor remarked that inflation concerns may prevent this from happening.



The competition from brokers and adviser to purchase mortgage leads from other companies is red hot at the moment because the demand for mortgage deals is falling. The lower number of customers who are actively looking for a mortgage deal, results in brokers fiercely competing for business against one another.



BBA figures showed that unsecured lending from banks remained subdued in December, while the amount of outstanding debt on credit cards rose by only ฃ200m, a lower figure that expected because customers were repaying more than they spent.



An increase of ฃ400m in the borrowing through loans and overdrafts was also seen in December, and consumers also stashed ฃ1.9bn in saving accounts or investment schemes. This was a ฃ200m increase on November, but was less than the amounts deposited during September and October into banks and building societies.