Introducing: Upfront Mortgage Lenders

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July 21, 2003, Revised August 21, 2006, May 18, 2007

"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 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 UML program was developed to meet this need. Lenders who comply with the requirements of the program are listed on my web site. The requirements, and how they meet the needs of shoppers, are shown below.

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.

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.

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 explanation should include 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 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 calculators on my web site or other sites. The required information is shown in Information Needed to Evaluate an ARM.

Requirement 5: 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.

At this time, there are four UMLs: www.ELoan.com, www.Amerisave.com, www.NationalMortgageAlliance.com, and www.betterchoiceloans.com.