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They Really ARE Crooks……

July 21st, 2008

The latest big mortgage news is from Florida (again!). The Miami Herald found that the majority of the state’s mortgage professionals are unlicensed, and worse, more than 5,000 of them are convicted felons! And this isn’t some mass-violation of the law–this practice is perfectly legal. What gives?

The deal is that while it’s illegal in Florida (as in most  states) for mortgage brokers or lenders to have a criminal record,  loan officers, loan originators, account executives, mortgage finance officers, or whatever the sales force members are called are allowed to. The broker / lender is considered responsible for the practices of his / her employees and is held legally accountable. This loophole has resulted in those who were stripped of broker’s licenses because of abusive lending practices getting right back into the industry, however. They just become loan originators and work for another broker. And there are brokers out there who don’t check the backgrounds of their employees (it’s not required by law) and don’t police their lending sufficiently.

So, how do you make sure the nice person sitting across from you isn’t on parole for something? First, know that you will almost certainly get a fair deal from an honest lender–the odds are overwhelmingly in your favor. Real estate expert Robert Bruss, in an article about financing real estate, states that “most mortgage lenders are honest.” As does Realty Times, which declared that while there are some “bad apples” you can expect honest dealing from the “vast majority” of lenders.

Second, learn what your state’s licensing provisions are. Some are quite rigorous, requiring background checks, continuing education, and even examinations in order for a loan officer to obtain a license. Others are less stringent, and some states have no requirements at all. Here is a good listing of state requirements for loan officers.

Third, check out the lender with your state licensing bureau. Check out this site for states which have lender databases online. You can generally find out if its licensing requirements are in order and if there are pending actions or investigations.

Fourth, shop with several lenders before making a commitment. Getting quotes from several mortgage loan companies can help you ensure that you are offered a fair deal.

Finally, really read your disclosures and know that in mortgage lending an oral agreement isn’t worth the paper it’s (not) written on. The most often-voiced complaint of borrowers is that the loan terms disclosed up front are different at closing. If the interest rate, terms (such as the addition of a prepayment penalty), or fees (disclosed in the Good Faith Estimate) have changed and you weren’t told about it before closing, don’t sign the documents. Hold off until the confusion is cleared up and you get a reasonable explanation or the loan terms you expected.

When refinancing a primary residence, borrowers get three days (called a rescission period) to undo the loan–use that time to be certain that your loan is what you expected. When buying property, insist that you get copies of your closing documents a day or two early. Then you can thoroughly go through them and ask questions under less pressure.

Finding a lender you  work well with and trust is as important as finding a trustworthy repair-person or babysitter. And the amount of money involved is serious stuff. A little research upfront can save you money and keep you from pulling your hair out.