July 21, 2003, Revised August 21, 2006, May 18, 2007, November 5, 2008,
December 27, 2008, August 3, 2009, September 10, 2010, November 1, 2010,
February 4, 2011, August 27, 2011, February 2, 2012
"Can I trust [name of mortgage lender]?”
“Where can I go to get information about [name of mortgage lender]?"
Since I began fielding questions about mortgages in 1998, these have
been among the questions I was asked most frequently. Very seldom was I
able to do more than guess at an answer.
What on-line mortgage shoppers want is a list of lenders who provide the
information shoppers need to make intelligent decisions, and who treat
them fairly after they become applicants and have committed themselves
to the lender. The Upfront Mortgage Lender (UML)
program was developed to meet this need. The requirements, and how they meet the needs
of shoppers, are shown below.
Access to Market Niches Served
Requirement 1: A UML provides quick access to the
market niches it
prices on-line.
The home loan market in the US is divided into millions of market niches
and no one lender serves them all. Shoppers need a quick way to
determine whether a particular lender prices the niche in which that
shopper falls. UMLs provide this information in a table of my design
that is easily accessed on its web site. If the UML does not serve the
shopper’s niche, she can go elsewhere without wasting time.
If the shopper’s niche is priced on-line:
* The shopper can make valid comparisons of one UML’s prices against
those of another, prior to paying any fees, and prior to filling out an
application.
* After selecting the lender and applying for the desired loan, the
applicant is not exposed to a future price change based on information
that the lender claims not to have had at the time of the original
quote.
* The applicant who elects to float rather than lock can monitor the
price as it is reset daily with the market, and therefore will not be
overcharged on the lock day.
Lender Fee Guarantees
Requirement 2: A UML discloses all lender fees, including points, origination fees, and any fixed-dollar fees, and guarantees them to closing. This assures borrowers that price information is complete, and that new fees won’t be added, or existing ones increased, after they have committed themselves to working with the selected lender.
Clarity in Lock Requirements
Requirement 3: A UML provides a clear explanation of its lock requirements, and discloses them prominently. The need for this became increasingly important after the financial crisis, and I suggested to the UMLs that they revise their section on locks to respond to the following questions:
What Must Be Done Before We Will Lock Your Loan?
What Happens If The Market Price Rises Before We Can Approve Your Application And Lock Your Loan?
What Happens If The Market Price Drops Before We Can Approve Your Application And Lock Your Loan?
How Long Are Locks Good For?:
How and When Can A Borrower Request a Lock?
What Is Covered By A Lock?
What Fees Must The Borrower Pay To Lock?
Under What Circumstances Are Fees Refunded?
What Happens If The Market Price Increases After The Loan Is Locked?
What Happens If The Market Price Drops After The Loan Is Locked?
What Happens If Critical Information In the Application, Such as the Borrower’s Employment, Changes After the Lock?
What Happens If The Borrower Wants To Change The Type Of Mortgage (Or the Rate/Point Combination) After The Price Is Locked?
What Happens If The Loan Cannot Be Closed Within The Lock Period?
Implementation has been left to the lenders. In selecting a UML, shoppers might want to check and see how well they have complied.
Disclosure of Third Party Fees
A UML discloses all third party fees with the best estimates possible, indicating which if any are guaranteed by the UML.
Provision of ARM Data
Requirement 5: A UML discloses all the information about its ARMs needed by shoppers to make intelligent decisions. It is very difficult today to obtain the information about ARMs that is needed to make an informed decision. Loan officers selling ARMs stress one or another feature, usually the index, and leave the remainder of the ARM’s features in the dark. Shoppers need information on potential ARM performance – what will happen to the interest rate and mortgage payment under assumptions about future interest rates that make sense to the shopper.
UMLs can comply with this rule in two ways. One way is to offer schedules of monthly payment and interest rate under no-change and worst-case scenarios. The first assumes that the most recent value of the index remains unchanged through the life of the loan, while the second assumes that the ARM rate increases by the maximum amount allowed in the contract.
The alternative is to provide the information needed for the shopper to calculate these (and perhaps other) scenarios using my mortgage payment calculators 7b, 7c and 7ci. The required information is shown in Information Needed to Evaluate an ARM.
Disclosure of Financial Incentives of Loan Officers
Requirement 6: A UML informs borrowers if its loan officers are compensated in a way that gives them a financial incentive to overcharge the borrower. Many lenders allow loan officers to charge overages, and to share them. An overage is a price higher than the price delivered to the loan officer by the lender’s pricing department. A loan officer who shares overages is in a conflict situation with the customer that the customer ought to know about.
November 5, 2008 Note: UMLs price loans on their web sites but do not qualify borrowers on their sites. This is done behind the scenes, usually the same day, using automated underwriting programs. Occasionally a borrower cannot be approved at the prices stipulated on a UML's web site. During the financial crisis, the number of such cases rose as underwriting requirements became increasingly restrictive. Usually, however, a borrower who cannot be approved for a conventional loan can be approved for an FHA.
Shopping Certified Network Lenders on This Site Is Easier and More Effective Than Shopping UMLs -- or UMBs
Shopping UMLs or UMBs was my preferred solution until I developed my own lender network. Instead of having to visit each UML site to compile pricing data, the data from all Certified Network Lenders is combined on this site for the convenience of shoppers, who are also provided with decision support at each step of the way. Such support is not available with UMLs or UMBs. See Finding a Mortgage on the Professor's Certified Lender Network.