I came into lending 22 years ago with a goal of helping people attain their dream of homeownership. I have always been an advocate for you, the consumer. I have testified as an expert witness, worked with both State and Federal Regulators to write the tests we in our industry must pass in order to obtain our licenses, lectured at the UH School of Business, and through this weekly newsletter, try my best to inform you of the ins and outs of real estate and residential lending.
People are shocked when I tell them that there are so many people working in my industry that are simply “working in my industry” and are not professionals at what they do – nor do they care to be professionals either. I won’t lie, successful people who originate mortgages can earn a lot of money. That is the lure for so many that are in our industry today. For them, it’s all about the money – not what’s best for the consumer. I have been handsomely rewarded over the years by always putting the needs of the client first. I’m not claiming that others are purposely steering consumers in the wrong direction to make more money (although that does happen). I am stating that consumers are not getting the best advice in order to obtain the best overall financing option for their situation. This is due to a lack of knowledge of mortgage lending and the guidelines we must follow. If these individuals were true professionals, this would not be an issue.
Let me get off my soapbox and share with you an unfortunate example of how a lack of professionalism, knowledge, and caring, ended up costing a consumer hundreds of dollars every month – and was completely avoidable.
When John and Nancy bought their home last year on Maui they had some prior credit issues that required them to use an FHA loan for their purchase. Their down payment was less than 20%. Because this was an FHA loan and they were putting less than 20% down, mortgage insurance was required. They ended up putting just shy of 15% down. Their mortgage was $670,000, so the mortgage insurance premium was well over $500 per month. What they didn’t realize until we ran the numbers on a possible refinance this week, is that if they had put just a little more down to actually have a full 15% down payment, the MI premium would have been $300 per month. How much more did they have to put down in order to save over $250 per month? A whopping $750! Without getting too technical, MI rates are based on the percentage of down payment. Rates are based on brackets of down payment percentages. The brackets are: 15%-19.99%, 10%-14.99%, 5%-9.99%, and 3%-4.99%. Since John and Nancy only put 14.99% down their MI was at a higher rate. Their rate was the same if they had only put 10% down. Their mortgage originator should have alerted them that by adding $750 to their down payment, they would see a tremendous monthly savings.
You the consumer are not supposed to know how to get the best mortgage – that’s our job the professional. The person that got them their mortgage failed their clients – period.
How did this happen? It was a lack of knowledge of lending guidelines, a lack of caring for the consumer, and a lack of desire of being the best one can be in their profession. This was not a mistake. It was something completely overlooked. And while I am at it, I have to fault the loan processor and the underwriter as well. No person who touched this file at one of the larger mortgage companies in our state, cared enough to make sure the client got the best deal they could.
Mortgages are not like ordering off the McDonald’s menu, where everyone gets the same uniform items. You don’t expect the person taking your order to suggest adding leaf lettuce and tomato to a Filet-o-Fish (although it makes for a significantly better sandwich). But when getting your mortgage, you should expect the professional you are dealing with to analyze your situation and make recommendations that would benefit you. That is why mortgage originators have education requirements and testing. But all that knowledge and testing is meaningless if your mortgage person there just to collect a paycheck.
I hear it every day “what’s the best rate?” I never hear anyone ask “do you see a better way to structure my financing?” Unless your mortgage person is a true professional, do you think they will point that out to you without you asking? Do you think that mortgage person sitting in a telemarketing center in the Midwest is there for a paycheck (just fulfilling your order) or are they motivated to help you navigate the complex world of mortgage financing?
Whenever I start the conversation with a new client I ask lots of questions. I’m doing this to understand their financial goals. Once I see what they are trying to accomplish, I can then make suggestions as to the best way to proceed with their financing. It could be a different loan type. It could be more or less of a down payment. It could entail leaving a spouse off the loan because of past credit issues.
Today, new innovative financing options are becoming available. It requires us in this industry to have an even greater understanding and knowledge of these programs and the guidelines we must follow. Whatever the case may be, as a true professional, my job is to make sure you the consumer get the best financing to meet your individual needs and requirements.