Since I began
fielding questions about mortgages in 1998, I have been frustrated by my
inability to answer one question in particular, which gets thrown at me
all the time. The question is "Can I trust [name of mortgage lender]?" A
variant is "Where can I go to find out about [name of mortgage lender]?"
Many potential
borrowers are shocked to discover that there is no registry of bad
apples, and no system to certify good ones. So I finally decided to
start a certification system of my own. I call the lenders who are
certified Upfront Mortgage Lenders, or UMLs. For a number of reasons
having to do with my capacity to monitor lender performance, the
certification process applies to internet-based lending only.
The central
requirement to be a UML is that borrowers are able to price their
particular deals on the site. A set of generic prices does not
qualify, and neither does a site where the borrower must go through a
loan officer to get prices.
A site may require
the user to input personal information, such as credit score or income,
before it will return prices, but it cannot require the user’s name, SSN
or other identifying information. Users can shop UMLs without fear of
being solicited.
No lender prices
every market niche on-line, but a UML prices some, and is upfront in
disclosing which niches it prices on-line and which ones it doesn’t.
Being able to
price a deal means having all the price components, not just the
rate. This includes mortgage insurance and all the price components of
piggyback seconds, where these arise. On ARMs, it includes the index,
margin, rate caps, recast period, negative amortization caps, and
maximum and minimum rates.
A UML is not
necessarily the lender with the lowest interest rate, the fastest
processing, or the most complete product line. At a future time, these
and other factors might be included. Right now, however, certification
is directed solely to the provision of the information that borrowers
need to make informed decisions; and to assurance of fair treatment
after shoppers have become applicants and committed themselves to the
lender.
The requirements
are as follows:
Requirement 1: A
UML Must Provide Quick Access to the Market Niches it Prices On-Line.
The home loan
market in the
Each UML fills out the form shown
at
Market Niches Priced On-Line.
Requirement 2: A
UML discloses all lender fees, including those expressed as a percent of
the loan (points and origination fees), and total fixed-dollar charges.
This assures borrowers that lender 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. The
required information includes that needed by borrowers to make
intelligent decisions about ARMs – see Requirement 5 below.
Requirement 2: A
UML honors the interest rate and fees included in its lock statement.
Fixed-dollar fees contained in a GFE issued prior to a lock will also be
honored
Requirement 3: A
UML Provides a Clear Explanation of its Lock Requirements, and Discloses
Them Prominently: Mortgage shoppers need to know when they have the
discretion to lock the terms of the loan. The explanation includes any
required payments, processes that must be completed, how expired locks
are handled, and whether the borrower is committed as well as the UML.
Requirement 4: A
UML discloses all third party fees with the best estimates possible,
indicating which if any are guaranteed by the UML.
Requirement 5: A
UML discloses all the information about its ARMs needed by shoppers to
make intelligent decisions. Shoppers need information on potential
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
The alternative is to provide the
information needed for the shopper to calculate these (and perhaps
other) scenarios using calculators on my web site or other sites. The
required information is shown in
Information Needed to Evaluate an ARM.
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. Loan
officers often benefit financially if they can induce the borrower to
pay more than the prices posted by the lender or broker. Where this is
the case, the borrower ought to know about it.