Consumers share their lending woes

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Bankrate asked consumers to share their stories about lender troubles — and boy, did we get an earful. Below are articulate first-person accounts of Murphy’s law as it applies to mortgage-related mishaps. Most are from consumers who appear to have good reason to be disgruntled with their lenders. But since we didn’t try to get the other side of the story, we used fictitious names to protect the guilty.

We also got a couple of letters from mortgage professionals in the industry — one that will shock you with its candid confession of unscrupulous practices used in the industry. And finally, we close with the tale of a woman who experienced woes firsthand as a lender to her daughter.

In the process of sharing their unfortunate experiences with loan transactions, these consumers impart some pearls of wisdom.

Closing nightmare

Having gone into our lender’s office to go over all the details associated with our loan, we were confident we were doing business with knowledgeable professionals.

We had received our confirmation letter the day before we closed that outlined important details, such as the amount of each loan — one for new construction and one for 30-years — closing dates, down payment and monthly payment. All looked correct.

So the next day at the title company’s office, we reviewed the numbers with our title rep. As we were signing our papers, we noticed there was a $370 discrepancy in the monthly payment from the commitment letter we had received just the day earlier. It was higher than the confirmation letter had outlined.

Our title rep ran the numbers for us and it seemed our lender applied the wrong rate. So, amid mounds of paper, our title company rep called the lender and they said, “Oh, sorry, it was a mistake,” which will now cost us an additional $370 per month.

So, in the end, we asked our lender, which word in your commitment letter is more important, “approximately OR professional,” and we found out the hard way, it was approximately.

K.A.San Antonio, Texas

Online lender headaches

Back in 2002 when we were buying our first house, we got pre-approved from an online lender. Then, once we made an offer on our house, we went back to the online lender for the loan.

They locked in our rate with our application, and said there would be no problem in closing in 20 days. A week before the close the online lender contacted us to say that our loan was not, in fact, locked (after interest rates had gone up!) because they could not write a loan in Santa Clara County using that lender (the house had been located in Santa Clara County the whole time) and they had to lock in our loan at a new rate.

We fired them, hired a mortgage broker to find our loan, and went on our pre-scheduled vacation to Hawaii. The broker locked in our loan and closed in about five business days. There is no substitute for personal service.

And … the low fees allegedly charged by the online lender are offset by the fact that they do not have the lowest rates.

Elizabeth PottsWeinstein San Jose, Calif.

Escrow error

We took out a home construction loan with ABC Home Loans in August 2007. When we closed on the loan we signed an escrow waiver, which eliminated our need to escrow our taxes and insurance. This was a stipulation we demanded when we chose this company to finance the construction.

Nine months later, when we went to modify the note to a permanent loan, we were told we had to put six months of taxes and insurance into escrow (we already paid our insurance for the year directly to the insurance company, but still had to put money into escrow).

We presented the loan officer the signed escrow waiver from our loan package that states the escrow account was waived. This started a legal challenge, which unfortunately we lost. ABC Home Loans claimed that the escrow waiver was a mistake and that the “compliance agreement” we also signed at closing allowed them to change the terms of the agreement if there were errors or mistakes, which meant the escrow waiver was null and void.

Our lawyers argued that ABC Home Loans misrepresented the compliance agreement and that it did not override the escrow waiver. We won that battle, but ABC Home Loans came back referencing another clause in the deed of trust, which gave them the right to change the escrow terms if they felt it was necessary.

After discussing this with our lawyers we decided it would be cost prohibitive to fight and it would jeopardize our ability to modify the loan within the deadline period. If we did not modify by a certain date, our interest rate would have been raised close to 2 points.

Bottom line is that we now have to escrow our taxes and insurance, which we are thoroughly against. There were a number of other last-minute surprises working with this mortgage company. ABC Home Loans saw us as a transaction and didn’t care about us as a customer.

We encourage anyone taking out a loan to have their lawyer review all of the paperwork. Don’t trust the lawyers drawing up the paperwork for the bank. The bank inserts language that allows them to change the terms at their convenience. Choose who you do business with wisely.
— Kristine TanzilloMyrtle Springs, Texas

More escrow blues

My son and his wife have a mortgage with XYZ Bank because I recommended it at the time. Now because of taxes and insurance they have had super increases in escrow and because of the economy their income has been drastically reduced.

They told me that they called XYZ Bank and they were told that the bank won’t even talk to you about solutions until you are 60 to 90 days late.

I couldn’t believe this so I called my local XYZ Bank loan officer and she said that it was totally out of their hands and to just keep trying to call the mitigation department.

My son and his wife are so upset about this because they don’t know what is going to happen and expect the worst.

They are both college grads with five degrees between them and own two companies and have jobs. They will succeed but, because XYZ Bank won’t return their calls or talk to them, they are now preparing to move out of their home and rent somewhere until the economy gets better. It’s sad because they have the ability to pay about $1,500 a month — just not $2,500.

You would think that if XYZ Bank could give them a $1,000 per month break and add it on their mortgage for two years, that it would only be $24,000, which is less than 8 percent of the value of their home. Banks are just asking for failure when they treat people like this.
— Buddy Haynes

Lender malfeasance

When my husband changed jobs some years ago, we qualified for a discounted employee rate on insurance for our cars and home. So we changed our insurance policies for our two cars and our home over to his new company. The new insurance company notified our mortgage lender, Downtown Savings, in writing, of the change in insurance carriers and we advised our old insurance agent of the change. There was no gap in coverage. We thought everything was fine.

Two or three months went by and all of a sudden we received a notice that we were delinquent in our mortgage payments, which was completely untrue — I’ve had three mortgages and never been a day late in my life!

Come to find out that when our old insurance carrier notified Downtown Savings that we had cancelled our insurance with them, without recognizing the correspondence from our new insurance carrier which they had received, Downtown Savings — on their own and without our authorization — took out a homeowners insurance policy that cost four times what our homeowners insurance cost us, and used two months’ worth of back mortgage payments to pay for it!

Then the bank had the audacity to report me (since the house was in my name) to the credit bureaus as being a deadbeat and, the final insult, filed a lawsuit against me to foreclose on the house!

I did some research on my own only to discover that we were not the only home owners scammed by this bank. I have no doubt that they made a commission or finder’s fee from the insurance company they hired to “cover” our home “twice.”

The experience cost us about $7,500. As you might imagine, I quickly refinanced my mortgage with an ethical mortgage lender and said good riddance to Downtown Savings. They are crooks!

— Lori Gedon

Mortgage planner perspective

Most borrowing horror stories happen as a result of lack of education. Many would have been able to avoid the horror stories had they taken the time to slow down the process to obtain a basic understanding of the mortgage process, what affects credit and the ramifications of their decisions.

Most people take longer comparing plasma TVs and vacation spots than they do their mortgage — that is why many have a bad experience at closing. By acting on impulse, as most do, they make the biggest financial decision in their life in a matter of minutes and then regret their actions.

My recommendation is to work with a local mortgage planner so you can meet face-to-face at their office and ensure that they have your best interest at heart and that you get a good vibe.

An added benefit is that a qualified planner is often a pillar of your community and as such will take the time to ensure you understand everything and that there are no surprises. After all, you may see them in the supermarket, so they will want you to have a good experience.
— Dave Muti, Registered Mortgage AdvisorParsippany, N.J.

The dark side

Here is a view from the other side of the desk.

Despite what you may think, we didn’t really want borrowers with “good” credit. We wanted those who are described in a politically correct way as having “less than perfect” credit.

Let’s take the case of Mr. LTP (for less than perfect).

In an environment where the best mortgage rate was about six percent, Mr. LTP could qualify for a 9 percent mortgage. But we wouldn’t tell Mr. LTP that. Instead, the conversation would go like this:

“As you know, Mr. LTP, your credit is not that good. You have had plenty of potholes in your credit road,” we begin. Mr. LTP would just stare at the floor and nervously shift his cowboy boots.

“But we (always use the pronoun we) were still able to qualify you for a mortgage.”

“You were?” Mr. LTP jumps to his feet looking like a guy ready to give someone a bear hug.

“Yes, it is at an 11 percent rate …”

At this point, Mr. LTP is no longer listening. He has only heard the magic word “Yes.” Mr. LTP had been afraid that he would be rejected, yet again.

What he doesn’t realize is that we will charge him a 4 percent origination fee instead of the 1 percent or less fee that we would charge our best borrowers.

To make matters worse, we would also charge Mr. LTP a yield-spread or Service Release Premium (SRP) on the other end.

Even without considering the extra fees we would charge, over the life of a 30-year fixed-rate loan on $100,000, the difference between a 9 percent interest rate and a rate of 11 percent (a mere two percentage point difference) would be an additional $53,000. That is more than Mr. LTP would earn in over two years.

Often, those who can afford the least pay the most.

Just one of the stories on how we burned borrowers from my book “Kickback: Confessions of a Mortgage Salesman.”
— Ted Janusz

Family misfortune

About four years ago, I received a lump sum amount of $20,000 for back-pay from Social Security.

That was my only chance to get me started on building my house. I have about one and a half acres and a very old mobile home that needs to be torn down because of mold, termites and just in bad shape.

About a month after I got the money, my daughter asked me if she could borrow about $10,000 to buy a Chevy Tahoe. Also, I had put the money in her bank account because the business she was in required her to have three months of income saved up before she could get her license, and she had asked me if she could put it in her account to help her. I did.

The day she called me for the loan, I was shocked that she would even ask me, especially knowing how important it was to me to get my house. I hesitated and said, “Now you know that is for my house.”

Well, she asked again and said she promised she would pay it all back in five months, and that she would do whatever she could to pay me back sooner even if it meant getting a loan.

I thought, well I’ll just have to wait five more months to start my house. I told her OK, even though I had this sick feeling in my stomach. I believed her and she sounded so sincere and grateful.

That was the beginning of our problems. To pay the money back she would just have to put the money back into her account. She agreed to pay at least $1,500 on the 15th of each month. She said it was in a high-interest savings account.

I would call her once in a while to see if she had made a payment. She would tell me not yet, or that something came up. I also asked her how much interest had been earned so far. She would get so defensive and upset. I do not know why!

Rather than argue with her, I told her that I wouldn’t call anymore, and I would just get the money on the 15th of September, which gave her an extra month.

The day finally came. I said to her, “So how much of the money have you put back in the account?” She said, “None of it.” I asked her why not. She said, “I don’t know. Things came up.”

The next day I had her withdraw the balance of what was left in the account and put it in my checking account.

We did not speak for over two years. I felt so used and like she didn’t care about me at all. This was such a deep hurt because we used to be so close.

As far as paying back the money, she started paying $200 a month shortly after that day. It’s finally paid off now, but I don’t have a lump sum anymore to start a house.

I still live in this old rundown mobile home. I am 54 years old and on disability. I won’t have another chance to have that much money at once and I don’t have enough to live on to put any in savings, especially at my age.

I would never ever recommend that anyone loan money to a relative! To this day, I will always wonder why she treated me like that. You would think that a relative would be sure to repay a loan more than someone who is not a relative. For some reason, it’s not that way.
— Karen