You know the drill. You and your siblings pile in your parent’s 1982 Chevrolet station wagon for the long 10 hr. drive to the summer vacation hot spot. Lots of games took place and many were invented to pass the time: Hold your breath through the tunnel, Stratego (tough in a bumpy ride), card games among others and the grand-daddy….Stare Down!
Stare Down is when you and your brother or sister touch nose-to-nose, staring into each other’s eyes to see who blinks first and loses the game. In real estate, there are times when questions arise that create that same type of tension. I’ve written over at Rain City Guide about a variety of issues that deal with transactional problems. Some topics are based from experiences our office has had, other topics from discussing transactions with other colleagues in the escrow business. The hope is for those real estate professionals to look inward to challenge them on effective ways to create smooth transactions.
How to potentially save hundreds of dollars or more
This discussion is geared towards providing suggestions to the audience at Seattle Bubble which involves mostly consumers who are both homeowners and those who are looking to buy or refinance an existing mortgage.
When selling a home, buying a home or refinancing, you are intimately involved in the process that revolves around money. It is imperative that you check and double check your estimated fees with the Settlement Statement that is provided to you when you are signing your paperwork. The Settlement Statement is the form escrow provides that is a itemization of debits and credits in connection with your transaction.
During the frenzy, much was on the line. Borrowers had little time and leverage on their side when making decisions about a purchase or in questioning fees when at the signing table. Borrowers knew that they had to perform or lose out on the purchase of their home. Any deviation from that could have detrimental consequences both financially and personally. After all, who wants to start the buying process all over again? In that environment, next to zero. There are probably stories from readers here that could empathize with the pressure cooker of signing documents that are foreign and difficult to understand.
For example, last evening my wife signed a client in their comfort of their Windermere neighborhood home at 7:30 pm. Their loan package was just shy of 200 pages. One of the bigger packages we see. How in the world can someone in the scope of an hour or so, have an opportunity to digest and understand all that they are signing?
Recently, a client did reference their GFE (Good Faith Estimate) with the actual broker fees as itemized by the Settlement Statement. A large enough discrepancy was found that it triggered further scrutiny by the borrower. Escrow does not have borrower GFE’s. We are not in a role to advise a client whether to proceed or not or whether a loan is a good program depending upon the borrower’s financial circumstances.
Naturally, the discrepancy for this client created a situation in which the loan officer needed to explain why the overage. In the meantime, the borrower did what many do not know they have the capacity to do. They gave written instructions to escrow to not close the transaction until this issue was resolved.
Thus, the Stare Down game began in earnest. The Loan Officer blinked and the client saved a lot of money. A lot. It pays to shop and it pays to be patient and it pays to be informed.
S-Crow
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26 responses so far ↓
1
Long Time Mortgage Broker / Real Estate Agent
// Apr 2, 2008 at 11:52 am
After years of hearing people say that they were duped by there mortgage broker because they didn’t understand something. I thought to myself, there are a lot of people that get mortgages that shouldn’t purely because they don’t understand how serious the agreement between the bank and the borrower is. Would it be discriminating to have people past a test showing they understand what they are signing before they sign it (Even have a version in Spanish)? We require classes and a test to drive a car, I think that a mortgage can be almost as deadly in the wrong hands. If nothing else, making sure people understand there obligations rather than just signing on the dotted line would help everyone else that is trying to sell there home for normal reasons and trying to compete with a bank selling a house. I think that all sides of the transaction should be held accountable not just the “greedy” banks.
2
S-Crow
// Apr 2, 2008 at 12:06 pm
Broker/Agent-
With the new proposed RESPA reg’s, borrowers may have more opportunity to understand loan docs vs. getting them a couple days prior to closing.
3
Ubersalad
// Apr 2, 2008 at 1:22 pm
It’s sad that this crap continues to take place…hence why the industry is a sh*t hole…
4
NotaBull
// Apr 2, 2008 at 1:38 pm
Long Time Mortgage Broker / Real Estate Agent,
There is a difference between “there”, “their” and “they’re”.
“Would it be discriminating to have people past a test ”
Oh Lord. Don’t get me started on that sentence! I have a problem with the hypocrisy of someone saying there should be better education when *their* use of the English language is so terrible.
5
Ubersalad
// Apr 2, 2008 at 1:47 pm
I noticed I put “continue(s)”…damn it, I failed.
6
Ira Sacharoff
// Apr 2, 2008 at 1:50 pm
Broker/Agent,
You might be one of the honest ones, but the main reason that people claim they were duped by mortgage brokers is because they were duped by mortgage brokers.
There are so many documented cases of mortgage brokers changing the income statement from their clients, and guiding them to subprime loans when they were qualified for conventional loans.
7
Buceri
// Apr 2, 2008 at 1:57 pm
The process is as pleasant as buying a car or getting a root canal. At the end you feel for your wallet. Something doesn’t feel right.
8
TJ_98370
// Apr 2, 2008 at 1:58 pm
Blatantly stolen from Calculated Risk - Too funny.
The Day the Subprime Died
9
Happy Renter
// Apr 2, 2008 at 1:59 pm
@notabull
It is possible that many people have minor learning disorders that can’t be diagnosed. I know plenty of intelligent people who have problems with simple spelling. I simply hope they aren’t in the writing industry and go on my merry way.
@longtime broker/agent
” In the meantime, the borrower did what many do not know they have the capacity to do. ”
So would you require all buyers to know exactly what they should and can do in the situation outlined by Tim? Would you require anyone who wants to buy a house to pass some sort of test? Do you honestly think anyone not in RE, finance, or law would pass? I don’t.
10
singliac
// Apr 2, 2008 at 2:01 pm
Tim didn’t write this, S-Crow did.
11
The Tim
// Apr 2, 2008 at 2:23 pm
Technically we’re both Tim. But I’m “The Tim” and he’s “S-Crow.”
12
singliac
// Apr 2, 2008 at 3:04 pm
Ah, I see. My mistake.
13
Angie
// Apr 2, 2008 at 3:51 pm
Personally, I’d like to see a population-weighted average histogram of the distribution of male names represented in real estate punditry, with particular emphasis on YOY trends in the Puget Sound Area within the last 7 years.
Long time no see, folks! I was out of town, then sick, then busy with work…but garsh, it’s great to be back on the Bubble.
My husband and I refi’d in late Feb/early Mar, jumping on the superlow rates of late Jan. I think I wrote about how incredibly hands-off the experience was, far more so than any other transaction (purchase, refi) we’ve done in the past. If that’s the industry trend, it’s definitely going to be more incumbent on the borrower to be vigilant. Who knows if the RESPA changes will actually make it more transparent or just feel like more paperwork in the pile.
14
laxtosnoco
// Apr 2, 2008 at 4:03 pm
A stare down is a great analogy. The experience can also be similar to when you think you’ve finally got an agreement from a car dealer. Then you come back to the office do the paperwork and the dealer tries to change the deal. Unfortunately walking away from the closing table isn’t as easy as walking out of the dealership.
What can you do?
1.) When applying for a loan make it clear that you know what a GFE is and that you expect the lender related items to be accurate. Ask pointedly at application which items can change.
2.) Get the GFE and study it carefully. Make it clear to the lender that you’ve shopped around before choosing them.
3.) A few days before closing, check-in with lender regarding the GFE. Confirm that there are no changes to the loan fees. Here you have to be careful not to give the lender an out to redisclose much higher fees or change the loan program.
4.) Study that GFE at closing for any discrepancies to the lending items. That doesn’t mean you should argue over $10 in courier charges.
5.) Be prepared to walk away from the closing table if something is really wrong. I’ve heard countless stories of people arriving at the closing table to find they’re getting an ARM when they thought they were getting a 30 year fixed. I can’t imagine signing the documents in this case. If you shopped around originally you should have a backup lender available, and your agent can help mend fences with the seller while you get new financing in place.
6.) Tell everyone you know when a lender tries to pull a fast one.
15
Marc
// Apr 2, 2008 at 5:27 pm
I would caution prospective buyers out there to be very careful before they walk out of a closing on a home purchase. Very often the buyer is signing closing docs one day before their scheduled closing date thereby creating a very significant risk that the seller will seek to retain the buyer’s earnest money if the buyer fails to close on time.
It is of paramount importance to avoid this potentiality and a good way to do that is to insist on your closing documents being prepared at least two or three days in advance of closing. I often hear buyers and real estate agents complain that the lender simply won’t produce docs any quicker thus they are helpless to avoid this scenario. If that’s the case, I’m sorry to hear it. I very rarely have this problem, perhaps because I advise my clients to relentlessly remind their loan officer that the docs need to be ready early so their attorney can review them. I firmly believe in the squeaky wheel theory. On those occasions where it’s getting close I’ve found that a friendly email from me gets a pretty good response.
As part of the service I provide my clients, I obtain their docs, review them and then communicate with escrow to correct mistakes that I find (settlement statement errors are common as are errors in the deed). I then send the revised docs to my clients so they can review them to make sure they’re consistent with their expectations. So far, I haven’t had anyone complain that the docs at the closing table were anything but what was expected.
16
Ella
// Apr 3, 2008 at 6:34 am
Also carefully check the yield premium spread (YSP). It is usually designated as paid outside of closing. It is the reward / commission that a bank pays to the mortgage broker.
The way a broker earns the extra money is by placing you in a loan with a higher interest rate then the one you qualify for. The broker will tell you that it does not cost you any money BUT it does.
When you pay a higher interest rate, the over cost to pay the loan back is higher and your monthly payment will be greater. Check it out.
Run a program with the principle loan amount at different interest rates and you will see for your self how much more you will pay based on the higher rate.
No wonder you broker does not want to talk about the YSP. Beware and be careful. It is your money and your loan should not cost you more in interest then you qualify for.
17
NotaBull
// Apr 3, 2008 at 7:25 am
“settlement statement errors are common as are errors in the deed”
Absolutely. In my most recent transaction I received the settlement statement a few hours before I was expected to go into the escrow office and sign. The settlement statement is not that difficult to understand but the first time you see one you might need someone to take you through how it all works. I personally didn’t find it particularly obvious.
In my recent case, the escrow office had split up the real estate taxes for the first half of the year to pro-rate them between buyer (me) and seller. That’s good. However, they took the amount for the first part of the year (that the seller should pay) and made ME credit the seller with that amount. On top of that, I was actually paying the taxes for the entire first half of the year. So I was paying the sellers taxes, and then crediting them too. That made a couple of thousand dollars of difference to what I needed to bring to closing.
Also, the HOA dues were not properly split. So I saved another 20 bucks there! YES!!!
The message here is that just because it looks confusing and the escrow people are professional doesn’t mean you shouldn’t ask questions and make sure you also understand. If anything you’re more likely to find mistakes than they will - it’s your money at stake after all! If there’s ever a time in your life to be super anal about details, this is it.
18
Marc
// Apr 3, 2008 at 9:09 am
Notabull,
I think you nailed the most common mistake I see: proration of property taxes and HOA or COA dues. With this being a leap year you’d think they’d properly credit that extra day, but, it seems that most do not. The simply rely on their “escrow instructions” which say the prorations will be based on a 365 day year. The fact that I think about this on every HUD-1 I review should give you some indication of how tight I am!! I just hate seeing a single penny wasted.
You are absolutely right that buyers and sellers should not assume that the escrow agent or the loan processor (who generated the lender’s settlement statement that is used by the escrow agent) did it correctly. They should also be prepared for push back from the escrow agent who is only human and very often will try to justify the numbers they used because they don’t think they made a mistake and/or don’t want to admit to a mistake (especially when it’s been pointed out by a layman).
19
BubbleBuyer
// Apr 3, 2008 at 10:06 am
But if you read your loan documents before signing them you can’t use the “my broker lied to me about the kind of loan I got. I’m a victim, A VICTIM!!”
It amazes me how many morons don’t bother to read their loan documents prior to signing them. If you don’t read every page word by word, you deserve everything you get. The one thing you can be sure of in any real estate transaction if you are a buyer is that everyone is out to screw you over especially your mortgage broker whose sole objective is to maximize the dollars he / she makes off you through excessive fees and YSP.
In my case my mortgage broker tried to rip me off $12,000 in YSP for a fixed 30 year loan with 20% down. When I told him to lower the mortgage rate to what the benchmark was at the time he acted all offended and demanded I furnish him with a documented offer from a competitor broker at that rate. I did and my rate was dropped but still yielded him $6,000 of YSP, about $5,400 more than he desrved for the work performed in my opinion.
Your due dilligence as a buyer needs to begin from the first instant you interact with your broker. If you blindly go with them foolishly expecting them to have your best interests at heart they will screw you over.
20
Ubersalad
// Apr 3, 2008 at 10:37 am
BubbleBuyer,
If people actually read word by word on their loan document, each escrow office would close maybe 2 loans per business day…although that’s probably considered good in today’s market.
21
BubbleBuyer
// Apr 3, 2008 at 2:53 pm
Ubersalad, I meant reviewing them at least the day prior to closing. I recall the pleasure of wading through several hundred pages of legal language the day before closing. I did close remotely, i.e. escrow company mailed me the documents which I signed and had notarized. I was able to call them with any questions prior to signing.
22
Ella
// Apr 4, 2008 at 6:38 am
Recently I heard that a local Puget Sound $400,000.00 refi routinely cost the borrower $20,000.00 in mortgage broker fees. Nice commission for a few hours of work.
Unfortunately, the borrower usually has to borrow the payment for the obscene fees and pay interest on the loan.
23
S-Crow
// Apr 4, 2008 at 8:53 am
Ella,
While I think that is extreme, it would not suprise me to the least. On a professional level, there is nothing that I could do because escrow is neutral and we are fact driven–there is no advice being provided. It is not our role. In the back of my mind though it is not unusual for me to think to myself how outrageous and absurd fees are for a specific transaction.
24
Marc
// Apr 4, 2008 at 9:15 am
S-Crow,
Would you describe your duty of impartiality to be identical in a purchase and sale transaction and in a refinance transaction? If not, in what ways is it different?
25
S-Crow
// Apr 4, 2008 at 9:34 am
Marc-
The neutrality I speek of is that we are not in a position to give advice as to whether or not the efficacy of a loan program or the fee charges by various parties are outrageous or not. It doesn’t matter whether it’s a refi or sale. Mr. or Mrs. borrower or seller or buyer, here’s the facts.
What is one of the more misunderstood things about FSBO transactions is that sometimes the parties will ask us transactional questions that are really meant to go to an attorney or an agent (if they had one).
The beauty of being an attorney is that you can not only work with the facts but can influence an outcome for the client.
26
Marc
// Apr 4, 2008 at 10:22 am
S-Crow,
So what specifically bars you from saying to a refi client, “you know, this 3% origination fee seems a tad high to me?”
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