Dear
Readers,
You may have read lately in the national press
about unscrupulous practices by some lenders for
refinance or home equity loans. These types of
loans are typically solicited by a lender via
mail or phone, and are almost never subject to
third-party scrutiny (such as a Realtor) because
there is no real estate transaction involved.
Thus a perfect opportunity is created to legally
bilk millions of dollars from an unsuspecting
public, in the form of "broker's fees"
and other hidden charges, often accompanied by
preposterous interest rates and draconian
pre-payment penalties.
Like so many of you, I've been
aware of the problem-although it has always been
easy to think of these abuses as occurring far
away, in more lawless places such as Florida!
But the most recent, and the worst, story I've
heard is all too local; it comes from clients I
worked with several years ago:
Needing a larger home for
their growing family, they decided to borrow
about $10,000 last fall to make needed
improvements to their current home, with plans
to sell this year. (Good so far, but I wish they
had called me at this point.) A seemingly
well-timed phone solicitation from an unnamed
suburban mortgage broker eventually led them
into an utterly unnecessary refinance of their
first mortgage, far above the market rate, with
an extra 4% broker's fee nestled in the
well-padded closing costs. And it gets worse:
the outrageous closing costs, plus the smaller
debt payoffs required by this lender in order to
make the loan, left only $1000 proceeds for the
borrowers! |
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The
lender's solution? An accompanying home equity
loan (their specialty) at 13%. The mortgage also
contains a pre-payment penalty (almost unheard
of these past 20 years), making it terribly
expensive for my clients to sell their house at
all.
Space doesn't permit a full
retelling of this cautionary tale-suffice it to
say the lawyers are on the case, and we wish
them well. Of course, most mortgage brokers are
ethical, and devoted to bettering the lot of
their clients-but how do we sort them out, in
the daily flood of solicitations we receive from
reputable-sounding companies? My suggestion:
don't try. Refinancing or equity loans don't
have to be do-it-yourself projects. Your Realtor
knows good and honest loan people; she (or he)
works with them every day, from the largest
banks to the small independent mortgage brokers.
For refinance, start with the mortgage banker
who obtained your first mortgage. For equity
loans, start with the institution that handles
your checking and savings accounts. Equity loans
shouldn't cost more than the price of an
appraisal. Talk to more than one lender, crunch
the numbers carefully, and don't be afraid to
ask "dumb" questions. Good luck!
| Pat
Rosaves is a full-time real estate
professional living in the Seward -
Longfellow area. She has more than 24
years experience in helping people with
their real estate needs. Questions may be
sent to her at River Realty, 2543 38th
Avenue South, Mpls, MN 55406. Or call her
at 612-724-1314 or email her at
pat@riverrealty.net
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