A client recently shared one of the most shockingly audacious and misleading rate quotes we have ever seen.
It is definitely a sign of the times (loan officers get desperate when the market is slower), and yes, the loan officer was with a huge “call center” company.
On Monday, I blogged about “Trigger Lead” legislation and mentioned how call center loan officers are pushed to produce, no matter what, and what I describe below is a clear indication of that pressure.
Before explaining what the LO did, I want to remind readers that there are many misleading rate quote tricks the call-center guys (and many other LOs) employ to confuse borrowers into believing they’re going to get a much lower rate than they will actually get.
And – I discuss several below – which I encourage everyone to review. Borrowers constantly send us Loan Estimates and demand that we match the rate, and then we review the Loan Estimate and explain why it is woefully misleading.
Anyway, this is what the call center LO did.
He sent our client a rate quote with a 30-year fixed rate of 5.875% – and $0 in closing costs.
The closing costs (mostly discount points and fees) for such a loan should have exceeded $25,000.
But the LO quoted $0 closing costs, accompanied by this phrase: “closing costs with well-placed concessions.”
Good gravy. Why not just quote 4%, if we’re assuming there will be “well-placed concessions?”
Anyway, the quote was not only ridiculously misleading, but it is likely downright illegal.
The quote was also littered with typos and math errors (the LO miscalculated the 10% down payment), apparently to remind us that the call centers don’t have the strictest of hiring standards.
I should add that the quote was from one of America’s largest online lead providers with a mortgage arm that has clearly received instructions to ramp up its production at all costs.
Our reminder, as always, is for borrowers to beware and for borrowers to always have their Loan Estimates analyzed by experienced loan officers who can instantly spot the tricks of the trade – as well as pure nonsense like I describe above.
Five Misleading Rate Quote Tricks
#1 – “No Cost” vs. “No Out-of-Pocket”
This is a classic ploy, and it is what we see the most often with misleading refi quotes. A true “no cost” loan means that the lender covers or pays all of the nonrecurring closing costs or one-time fees (title, escrow, appraisal, underwriting, etc.) on behalf of the buyer. With a “no out-of-pocket closing cost” loan, the lender still charges the buyer ALL of the standard closing costs (and points in many cases); the lender, however, increases the loan amount by enough to cover all of those costs so the buyer does not have to pay them “out of pocket” at close.
#2 – “No Cost” vs. “No Points/No Fees”
Many lenders quote “no points and no fees” loans, when it really only means no lender fees (“big banks” are notorious for this). Buyers still have to pay for their appraisal fee, escrow fees, title insurance fees, notary fees, etc. These fees can easily add up to several thousand dollars, making “no fees” quotes very misleading.
#3 – Quoting Non-Existent Rates
Some lenders quote rates associated with very short-term lock periods (under 7 days for example) that WILL only be available once a loan is fully approved. So, if rates increase between the date the loan is submitted and the date the loan is approved, the buyer is out of luck. Similarly, many lenders also underquote rates during a buyer’s pre-approval stage, knowing they will not be held accountable for that rate because the buyer is usually weeks or even months away from going into contract. At that time, when the actual rate lock is necessary, the loan officer can then say: ”Oooh – sorry dude, rates have gone way up…”
#4 – Quoting Without A Full Scenario (credit score, LTV, property type)
This is a painfully common trick too. There are as many as 13 factors that affect every buyer’s individual interest rate, as set out in this blog. Some loan officers purposely misquote before knowing all of these factors in an effort to reel in buyers, knowing that the actual interest will likely be higher once all of the factors are known. The loan officers simply hope they can convince the buyers that the mistake was innocent and that the buyers will not want to endure the time or cost (especially if they pay for an appraisal) that going to another lender might entail.
#5 – Manipulating Annual Percentage Rates (APRs) and Closing Costs
In this blog called 5 Misleading Closing Cost Tricks Big Banks Play, I illuminate a lot of closing cost tricks lenders play – often to manipulate APRs, which is amazingly easy to do! These tricks include understating prepaid interest (which makes APRs artificially low), property taxes and hazard insurance. Lenders also sometimes understate 3rd party fees and eliminate “owner’s title insurance” altogether – which also reduced APRs.
What Should Buyers Do To Avoid These Tricks?
They should only use lenders with stellar online reputations and reviews, make sure they are getting quoted rates that can actually be locked, and go over their Loan Estimates with a fine-toothed comb.
If you’ve received a loan estimate from your lender and would like a second opinion, we’re happy to take a look! You can request a second opinion HERE.
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