We've all seen it - an advertisement for a mortgage that promises unheard-of-low interest rates, picking up every dime of costs associated with the mortgage, etc.
Deep down, you know it's not a good idea as you've never heard about this lender. Plus, how on earth can they offer those crazy rates AND pick up all the costs?!
The truth is, they can't. And they know it too. What you, and anyone else who has tried using them, will find is that they are only good at selling the sizzle, but you never - or rarely get the steak. And even when you do, it's overcooked or raw - never the way you originally ordered it.
What to expect...
We'll break down what to expect in a minute. But, just for fun, I can't think of a better video that depicts the way those fly-by-night, promise-you-anything lenders work... It gets really funny around 52 seconds.. :)
So that video just about sums it up!
But to break it down, let's go over a few things to expect.
You have a high chance of not closing.
Pull-Through is the percentage of loans closed from application to keys in hand if you're doing a Purchase - or documents/cash in hand if you're doing a Rate/Term or Cash-Out Refinance.
I once wrote loans for a big bank that will remain unnamed. In a conference call with their top producers, lending managers and VP of mortgages, they were hooting and hollering and cheering over hitting a 60% pull-through.
60%?! That means that 40% of ALL customers were declined. So, if you happened to be pre-qualified with them and were out there trying to outbid everyone else on a home... finally landing a contract... you have a 40% chance of being declined through their underwriting! Oh! And, they were super-proud about this because they were working so hard to increase their pull-through ratio and it had just increased to 60%! Just sad...
Needless to say, I spent very little time with that company...
But, more importantly, as a consumer, you need to understand what the company's pull-through ratio is. And - be bold in asking any Loan Originator what their pull-through ratio is and then what the company's is. You might be surprised to find out that it's lower than you might think.
You may be working with a non-licensed LO
Wait. Some Loan Officer's Aren't Licensed???
It's true. And here-in lies the next problem...
Would you allow a non-licensed physician do major heart surgery? Of course not!
But some of you are doing the same thing when you sign up for a mortgage loan - especially when it's through your bank!
Fact: All LO's are registered in the NMLS or Nationwide Mortgage Licensing System. It seems special and official. But, from experience, I can tell you that all it took for me working for one of the largest banks in the nation, was a week of training and signing an online statement. I was as green as green could be writing some of the largest financial transactions almost anyone could get into. The scary part was when I knew something wasn't right, but I had to go through with it because that's what my manager said.
Sadly, this depiction is a mirror image of a LOT of loan officers in the state of Arizona. Sure, the company they work for has a license that acts as an umbrella of protection to each LO. But, the actual LO isn't licensed.
The equivalent to having a bank/non-licensed loan officer complete your loan, who yes - is registered with the NMLS, would be like checking the yellow pages for a heart surgeon, never checking their credentials, and trusting that what they say is sufficient to complete your surgery.
Want to know if an LO is licensed? Go to https://nmlsconsumeraccess.org/ to check. Practice with mine! Once there, type 692946 (my NMLS number). You see "Sean Brandon Price" pop up. After selecting my name and verifying you're not a robot, you will see my record. Towards the bottom, you'll see "State Licenses/Registrations." To the right of the "Arizona" row, click "Show Details." Once selected, you will see my license number 0929797, that it was issued 4/08/2015, that it is renewed through 2021, and that the regulator is Arizona Department of Financial Institutions. Bingo! There's a licensed LO! ;)
Back to the Sizzle & No Steak
"Change of Circumstance" is an industry-known term that means there has been a legitimate change in the loan terms: loan balance, rate, cost for rate, payment information, etc. Now, there are several reasons for using these forms and I've used them myself. However, back to these fly-by-night online mortgage companies.... They will often sell you on a deal that they know they can't pull off to get you in the door. Then, when they go to actually lock your loan, you'll be given options that are nothing like what originally sold you. I've even seen some lenders wait until the last minute to lock their clients so that they are so far along in their loan process, they (the client) have no choice but to just say "yes" because they want their loan closed - even if it's thousands of dollars more in costs than originally quoted. And those lenders are great at using those Change of Circumstance forms to cover their tails whenever audited. So, it's hard to track.
In Closing....Watch Your Back
Wrapping up - the moral of the story here is to watch your back. It's ok to question your LO to, first - make sure you're understanding what they're saying. But, secondly, it's ok to continually question what is being said or done throughout the process. And, at any time in the process, if you don't feel comfortable with what is being said or done - SAY STOP!
I've had clients pump the brakes with me because I thought they were moving full steam ahead, and they weren't. I have always appreciated when my clients have stopped me to get clarification on what was taking place and even others who have decided to stop the process altogether because they ultimately didn't think they wanted to proceed. I'd much rather know that in the middle of the process than after we close, only to feel horrible about it down the road.
So - SPEAK UP. If you ever have an LO who doesn't listen, then fire them on the spot and move on! There are 9,650 registered Loan Originators in the state of AZ according to the U.S. Bureau of Labor Statistics as of May 2020. So, trust me when I say - there are more fish in the sea! :)
Until next time...