AOL Real Estate: Mortgage Tricks of the Trade

May 23, 2007

The second of a series from AOL Real Estate. Here are excerpts:

A Mortgage Broker Reveals the Tricks of the Trade

Inside Stories From Today's Real Estate Market
Jason Walker, AOL Real Estate

"There's an old saying in the mortgage broker business: The biggest liar gets the deal," says one home loan broker who has been in the business for more than 15 years.

"When I price my loans, I price at the point where my buyer can't get a better loan anywhere else. That's how I sleep at night. But the other rule is to get as much from the borrower as they can before they notice. Most agents do the latter,"

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A lot of loan brokers, "prey on the ignorance of the consumer. The consumer is like, 'Oh gosh, I'm getting a 1 percent or 2 percent loan.' They don't understand there are no free lunches. Every month, they are losing equity. These loans have been around since the early '80s, but it wasn't until recently that the loan values were 95 percent of a home's value, compared to tougher standards like 80 percent loan to value."

What's making matters worse now is that the people caught in these negative amortization loans are finding it tougher to refinance as banks have become more conservative with their lending practices and interest rates have gone up. "The agents that were really doing it a lot were people who just got into the business. These were new loan officers. It was easy to sell people on the monthly payment alone. They would never really go over the consequences down the road." also points out that many of the people who signed up for the negative amortization loans were not sub-prime borrowers, but people with good credit known as A-grade borrowers.

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Sub-Prime Lending Equals Big Money
The real money to be made by loan agents is with sub-prime borrowers. These are people with collections, car repossessions and bankruptcies on their record. Because of their poor credit ratings, they can't qualify for prime interest rates. If the sub-prime borrower does get a loan, his or her interest rate will be above the prime rate. "A lot of inexperienced loan brokers rushed in to make quick money. The sub-prime guys can make anywhere from $5,000 to $10,000 on a loan.

One Good Thing About Sub-Prime Loans
While most headlines of late have focused on the victims of sub-prime loans facing foreclosure because of adjustable rates, points out one positive of sub-prime lending. "The borrowers were given a means to buy a home. These people wouldn't have been able to get loans before, so it's good in that way." The problem now, of course, is when the loans adjust up and the borrower can't afford the new payments. They'll face a tough time getting another loan because the banks have tightened their lending practices.

What Tips Does Victor Have for Loan Seekers?
Read the rest of the story...

Published by permission from AOL Real Estate.

It is always good to hear from insiders in any industry and, every industry has its quick money participants. While sub-prime loans have helped many afford homes that otherwise could not, the victims that either didn't understand or who were duped are getting hit the hardest. Not getting good advice from a reputable mortgage banker, broker or a real estate agent spells trouble with a capital T. A legitimate professional will "tell it like it is" to a consumer even if it means not getting the business.

Beware of the "it is too good to be true" selling points from anyone that wants your business. The tips provided in this article are good ones (you have to click on the "Read the rest of the story link above"). And, if you have any doubts, get a second and even a third opinion. I always advise clients to "shop" loans from reputable brokers/lenders that have a local presence. I prefer banks that write their own mortgage loans and service them. You will simply get better service and straight advice.

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