10 Things Your Lender Won't Tell You - Part 5

Today, a look at the final three "Things Your Lender Won't Tell You."
8. "You Should Worry About Our Finances Too."

 

The chances that your bank will go under are slim, but it does happen. Shanda and Steve Falcon know all too well. It took Abbey Financial, a lender in Cambridge, Mass., six months to refinance the Falcons' mortgage. Four days later, the deal fell apart and Abbey declared bankruptcy. The Falcons were out no small amount of money, including $1,700 they paid for a rate lock. And they weren't the only ones. Abbey's bankruptcy stranded 867 other homeowners in six states.

 

Think it couldn't happen to you? Think again. Things have calmed down since interest rates have fallen from the highs of 1994. But Mark Thomson, a department of financial institutions assistant director in Washington State, warns that "rates could get bumped back up at any time, and the same situation would replay — if the market dries up, firms that aren't financially stable are going to have a difficult time." The upshot: If your mortgage banker or broker shuts down, your file may land on a trash heap and you'll have to start your loan-hunting-and-gathering expedition all over.
 
9. "You're 'Prequalified'? Don't Bank on It."

 

Lenders will tell you that prequalified borrowers practically have their mortgage in the bag. But they often don't mean it. Sometimes they will pre-approve you based on what you have written or verbally stated with no verification. These are called "wastebasket" approvals. When it comes to actually getting a mortgage, they don't mean anything. That final approval is dependent on verification of that information. This can mean trouble all around. Once a client of Ray Rizio, a real estate attorney in Bridgeport, Conn., went into contract with a buyer who had been pre-approved by a local lender. "Three other deals went into contract based on this pre-approved buyer — it was a sure thing," he says. It wasn't. The buyer wasn't a U.S. citizen, he had five different employers, and he had horrible credit. "The lender didn't even pull his credit report," says Rizio.

 

Happily, lenders are adopting tougher pre-approval rules. But get it in writing before you make any plans based on a lender's word.
 
10. "What Happened to Your Prepayments? Can't Be Sure."

 

Many homeowners pay down their principal early, bit by bit. It's a great way to reduce your interest payments over time. But often those extra payments will sit in an escrow account — and won't be credited toward your principal — because your lender doesn't know what to do with them.

 

In 1993 Kathleen and Hal Aaron paid an extra $1,017 on their $117,000 one-year adjustable-rate mortgage for their New York City pied-a-terre. But when they got their year-end mortgage statement, there was no record of that payment. Where was the money? The Aaron's lender had stashed it in a savings account. Only after two months of phone calls and irritation was the bank able to find the cash and put it where it belonged.

 

Why aren't lenders on the ball? It confuses payment schedules, for one thing. But lenders also make money on the interest you pay — income that's eliminated when you prepay your principal.
We hope you gained some useful insight in to the world of mortgages with this series.