| Don't take your prime credit to a subprime lender |
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Then there's the name game. When an organization uses
a standardized logo and name -- Citibank and Citifinancial, for
instance, boasting the little red umbrella -- customers assume they
share a back office and therefore accept the loan officer's offer
as the best available. Conglomerates like Washington Mutual, on
the other hand, give their subprime subsidiaries completely different
names, such as Long Beach Mortgage, so consumers have few clues
that they're in a subprime's realm.
Stand-alone subprime lenders like
Ameriquest, which take to the airwaves during the Super Bowl and sponsor the Rolling
Stones' concert tour, also muddy the waters. "Some lenders will, through
their advertising, say, 'Problem credit? No problem.' It's not a legal notice
but it is a cultural notice," says Lee. "But 'proud sponsors of the
American dream' gives you no idea that Ameriquest's interest rates are significantly
higher than prime lenders'. They have a very wide-mouthed funnel bringing people
in, even people without bad credit." Of course,
not every parent and subsidiary operates in this manner, Countrywide Home Loans,
for instance, automatically promotes someone to a prime loan should they qualify
for it, even if they apply at the Full Spectrum subprime office, says Ken Preston,
a senior vice president with Countrywide. The policy, he says, is a long-standing
one. "The customer deserves the right to receive the
loan they qualify for," he says. Even folks who use brokers
aren't protected.
"If I send a deal to Chase, Chase won't send
that to a subprime or an affiliate without letting me know what
is going on and why," says Steven Schneider, president of the
Florida Association of Mortgage Brokers and owner of Abacus Lending
Group mortgage brokerage in Miami.
That's fine if the broker is working in your best
interest, says Lee. But lenders provide mortgage brokers with rate
sheets showing rates for specific FICO score ranges. If the broker
can get a client to agree to a higher rate, the two split the overage.
The industry calls it a yield split premium. Average
Joes call it a kickback, and "it's really an outrage,"
says Lee. "But it's not illegal. I'm not saying the broker
that is overcharging you is a criminal."
The
consumer's move
To obtain the best quotes, first know how your credit
score translates in the financial world. Says Banks, anything above 700 is good;
800 to 900 means you're walking on water. Loan rates typically start to increase
between 670 and 690. But don't let these numbers lock you into anything. Schneider
has seen instances where the deal was clean enough that even borrowers with a
few credit blemishes still qualified for regular conforming Fanny Mae or Freddie
Mac loans. "I resist giving simple numbers to say, 'Below
this, all is lost,'" says Lee. "It's still important whether your score
is 640, 620 or 580 to ask for the best price. It's not open season on you simply
because you're under some magic number." So commit to
some old-fashioned homework. Experts recommend shopping around, and check in with
online sites often to stay abreast with the going rates. At the very least, a
quote of 12 percent when others are receiving 8 percent should raise a red flag.
Then pepper your potential lender and brokers with pointed questions: Which division
of Wells Fargo are we talking about? How are you being paid? Do you receive a
commission from the mortgage company? Finally, consider
making inquiries with community banks, which typically don't deal in subprime
loans. "It's not the silver bullet, but it makes it less likely you'll get
caught in this duplicitous game of entering through the wrong door," says
Lee.
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