Unfortunately, there are many ways to fleece a trusting buyer.
Who can you trust? Obliviously not the sleazy looking guy pictured but there are others who appear trustworthy who could be picking your pockets.
Most of us, when shopping, search for someone we can trust for good advice and a fair deal. Consequently, there are those who fulfill that need with a trustworthy appearance.
Often advertisements show them with Trust Symbols: holding a cute child or pet, surrounded by family.
Some appear trustworthy by company association, like starting a credit union or even better a military credit union.
On Friday, 11/27, I noticed a military federal credit union (FCU) advertising a Zero Point loan for 4.875% with an APR of 4.963% and the FCU would even pay lender fees.
Hmmmm... on Friday, at that rate, they should be paying their borrower's fees and a signing bonus.
The Zero Point APR seemed high to me so I used my APR calculator to find the fees.
The calculation required a loan amount and there was no loan amount disclosed beside the advertised rate and APR so I scrolled down to their detailed disclosure to see what I could see.
Below, in lots of small print, the FCU disclosed a $300,000 loan with a rate of 5.000%, 1-Point and an APR of 5.089. Hmmm... In this example, the APR contained 1 Point but no lender fees or prepaid interest.
So, based on their small print disclosure I also used a $300,000 loan amount and zero allowance for prepaid interest to find the fees on their Zero point 4.875% Rate.
Wow, based on the advertised Rate and APR, lender fees are a whopping $3,000. BUT WAIT.... There's more! Leave us not forget the small matter of 1.75% undisclosed yield spread premium (YSP) that, translated to dollars, is an additional $5,250. How do I know there is 1.75 Point YSP, you ask. Since you asked, on Friday, I know of at least two wholesale lenders offering their approved brokers 1.75 YSP on a 4.875% Rate. If a small, local mortgage broker can find that much YSP then a national FCU should be able to do that or better.
Did I mention that credit unions are not required to disclose yield spread premium?
To recap, let me count the ways this Military Federal Credit Union pissed me off.
- Credit Unions are supposed to be Non-Profit clubs which implies their rates and fees will at least be competitive with other lenders.
- A "military" CU implies it is a private club where our military will receive better deals than elsewhere. In reality, this Federal CU is even more expensive than any of the expensive four big banks.
- $8,250 is a lot of profit on a $300,000 loan; especially from a company that lulls it's customers into a false sense of security that may prevent their "club members" from aggressively shopping elsewhere.
- This CS CU is targeting our young military personnel which is typically an unsophisticated market and that dear readers is a load of BS.
- The APR in their small print disclosure failed to include prepaid interest. Never trust a lender that does not include at least 15 days prepaid interest in their APR when the closing date is unknown. The dollar amount for 15 days interest on a $300,000 loan at 5.000% is $625 and that is a large Whoops at closing.
- This Federal CU may disclose prepaid interest in their good faith estimates but I don't know that because a GFE could not be obtained until the borrower completed a loan application... more BS.
The moral of this story? Let education, facts and figures be your guide... NEVER buy anything based solely on trust. You may choose a lender because you trust them for one reason or another but do not fail to always verify your trust.
Education is the Consumer's Only Real Protection.
Education is Consumer's Only Real Protection.
- FHA 203k Renovation Mortgage - All You Need To Know Video
- Energy Efficient Mortgages - All You Need To Know Video
- What You Should Know About APR
- How To Shop for Mortgage Rates.
- Beware of Misleading Lender Advertising
- Education is the best consumer protection
- Rates and Point Relationship Explained
Bill Ladewig
800.664.7283 (SAVE)
Bill Ladewig is a Mortgage Broker Licensed by the California Department of Real Estate 00968137
NMLS #291249
San Diego FHA and VA Home Loans Escondido Mortgages Escondido Localism San Diego FHA and VA Home Loans San Diego Localism San Diego UFMIP Escondido Mortgages Escondido Localism San Diego Mortgage Ultimate Mortgage Calculator
Bill, excellent post regarding fees that are not clearly identified. It is surprising to me to find the YSP is often not noticed by agents for their clients and I didn't know that credit unions are not required to disclose them.
Isn't all this YSP supposed to go away the first of the year with that "new" government, consumer friendly guide?
That's why I send my buyers to a broker I trust. I know she discloses EVERY fee to them and I've always told people the APR is more important than the stated rate. Sneaky little big hidden fees tick me off too. Nice explaination of the yield spread premium.
Bill -
I am with you. I had client get burned by her credit union just this week.
It seems to me credit unions have been abusing their low cost image lately. That's just my personal take, though.
But your post certainly doesn't surprise me.
Hi Bill, Thank you for this information! Everytime I come over to your post I learn something new, and I appreciate that! There is a lot more to it than what meets the eye- even in the very small print.
the way some credit unions act is a big scam.
if you go to CUNA, credit union national association, they will refer to the customers as member/owners.
they don't treat you like that though.
Military crdit unionis acting like a big rip off. It is difficult to get the military to not go that way.
Hi Bill, As of January 1 doesn't everyone have to disclose all fees including yield spread?
What a great post. Everyone should read this one . . . trust me. :) Thanks again for a great post Bill.
What a great post. Everyone should read this one . . . trust me. :) Thanks again for a great post Bill.
Bill, good post and I have the same questions, on January 1 do all entities loan money have to disclose YSP?
Bill,
Great post and points. I have to say it brought up memories of the Late William Proxmire and his Golden Fleece Awards
I have usually encouraged buyers to shy away from credit unions for amortgage loan
Hi Susan, most credit unions operate as mortgage bankers or correspondents and are not required to disclose YSP.
Carla, the FDIC has a new rule that will probably go into effect in 2010 that will not allow mortgage brokers to be paid YSP. Other lender types will still be able to receive YSP which will put mortgage brokers at a sever competitive disadvantage.
Tammy, a trustworthy lender lender is great partner for any Realtor
Joel, it is a shame that some poeple take advantage of their postiion of trust to take advantage. We just have to be sure to shine the light on them when we catch them.
Thank you Mary.
Jay, there are bad apples in every barrel and it is our job to point them out.
Tim, anyone who rips off our service men and women need to be stoped.
Bob, the way things look mortgage brokers are the only group will not be able to be paid YSP. It will be business as usual for all other lenders.
Susan, thank you very much.
Janice, only mortgage brokers will be affected.
Thanks Paul.
Joe, most of the time credit unions and big banks are not as competitive as an aggressive mortgage broker.
Bill, How disturbing, as it's exhausting sometimes to figure out who to trust. I appreciate your great details and have subscribed for future GURU / straight talk about mortgages. All the best, Michelle
Thanks for article. We learn a lot from Active Rain Blogs. Best Regards,
Thanks for article. We learn a lot from Active Rain Blogs. Best Regards,
At the end of the day the saying , "If it is too good to be true thaen it isn't true ," is probably the way you should view some of these things
I agree with the disclosure of YSP.
I don't agree with the fact banks, mortgage bankers and correspondents don't have to disclose their spreds.
I guess it goes to show who has the strongest lobby in Washington DC.
I bet you opened a few people eyes with this post
Great post. Folks need to slow down, think for themselves and our government needs an overhaul to make sure we are protected from the "trust me" gangsters.
Great post. Folks need to slow down, think for themselves and our government needs an overhaul to make sure we are protected from the "trust me" gangsters including the government.
Michelle, trust can take a while it is something that builds on performance. My first test is straight answers to my questions.
Edward and Carla, thanks.
Charlie, yup
Mark, that would be big banks and they seem to be making the rules for their legislative flunkies.
Virginia, I hope so.
Alessandro, the best protection is consumer education.
Trust and verification... one of my husband's favorite lines! Great advice, especially now.
Lisa, your husband is a wise man verified by who he married. :o)
I agree if it sounds to good it probably is.
Don't worry folks....our government will take care of everything for us!
[I know a broker in the Hispanic market who has a picture of himself and the Pope on his office wall. It turns out the "Pope" is a life size cardboard cutout.]
Oh dear. :)
Great post, Bill. Trust but verify! (and verify first!)
Great Blog!
Hi Bill, Excellent post. I would naturally assume a CU would be more than competitive for its members !
Terri, I have to agree with that.
Robert, you should have added to the end of your comment "just bend over and relax"
Candice, "oh dear" is right. I went for months being impressed until one of his agents told me about the life sized cutout. Even after I knew it was fake it looked real. There are on-line companies that sell the cutouts.
Thanks Krista.
Bill, I made that same assumption until I accidentally found that CU on line and it really pissed me off. A predator disguised as good guy in an unsophisticated market is like taking candy from a baby. I think this is the exception because in San Diego we have a couple of aggressive CUs that sometimes give me a run for my money.
So, it would be safe to say that an educated consumer needs to shop around for the best rate, and ultimately the most trustworthy lender. Thanks for the post, Bill. It is an excellent reminder not to rest on our laurels.
Bill,
Many a nice facade has something not so nice hidden behind it. It still applies that if it sounds too good to be true, it is. As you say, verify your trust.
Excelllent post but I'm not sure I trust it, LOL
Great post Bill. Very intuitive, informative and useful.
Bill,
You are one great loan officer that knows his stuff! Thank you so much for blogging this information! The fine print is where it's at obviously.
Now I'm wondering which FCU...
Hi Jane, according to me I think every Realtor should develope a trusted relationship with an experienced mortgage broker with many sources.
Esko, we need trustworthy associates and we should verify that trust from time to time.
Scott, :o)
Don, thank you very much.
Judi, Wow, thank you so much. Maybe the point is also, take nothing for granted.
Too many people think someone who is not trustworthy looks a certain way, not true, they come in all shapes and sleazes and I've learned the hard way to check before going forward with any transaction. Isn't it a shame we have to do that?! I love this post Bill!
Thanks Wanda, appearances can fool us and I have learned the hard way verify my trust.
Thanks for the post. It is a good idea to ask friends for a referral when shopping for loan or a home.
Bill, tell us how you really feel about that credit union! hee-hee. I LOVE your picture! PERFECT... especially makes me think of what we'll be saying to our clients when the new and improved GFE comes out... you know the one that doesn't give program type, an accurate amount required for closing, and the PITI payment!!! (I'm rolling my eyes wondering how stupidity once again is rampid in the minds of our those who pass legislation these days!)