The only people who should read “MortgageConfidential” by mortgage broker David Reed are home buyers who want toavoid unnecessary mortgage fees, homeowners who want to refinance and savemoney, and real estate agents looking out for the best interests of theirbuyers. All others should avoid reading this superb new book because you willbe shocked by what goes on in the home-loan industry.
The author must need 24-hour security guards because hereveals the dirty tricks some mortgage lenders use to secretly increase theirprofits at the expense of borrowers.
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For example, Reed doesn’t hesitate to expose the unnecessary”junk fees,” such as administrative fee, processing fee, originationfee, documentation fee, and other creative titles, which are pure lenderprofits. He explains a junk fee is a lender charge that is not for a legitimatespecific service, such as an appraisal, credit report, title insurance orsurvey.
David Reed is a mortgage broker who is clearly on the sideof borrowers rather than the actual lenders. He has many years of experience asa mortgage broker so he knows how borrowers can get the best terms.
To illustrate, the author suggests borrowers use andunderstand lender terms such as 1003 (number of the loan application mostlenders use), prequalification (worthless, Reed says), preapproval (alsoworthless), approved with conditions (what borrowers should obtain beforeshopping for a home), clear to close (lender is ready to fund), and funding(lender wires cash to the closing settlement).
Being an experienced mortgage broker, Reed explains howautomated mortgage approvals work and why borrowers should leave blanks ontheir loan applications rather than supply unneeded information, which lendersthen must verify. He also explains the important “front ratio” or”housing ratio” and the so-called “back end” total-debt-payment-to-earningsratio. After studying this valuable book, readers will know as much or morethan most mortgage brokers know.
Especially interesting are the dirty tricks some mortgagelenders use to make their loans seem the lowest cost. Reed explains how they”low ball” closing costs by estimating abnormally small fees. Then,when the actual lender imposes higher costs at the loan closing, the borrowerhas little choice but to sign the papers or walk away and lose the property.
Another dirty trick Reed exposes is the interest rate”lock-in” scam. He reveals how some dishonest mortgage brokers tellborrowers their quoted interest rate is locked in even though the mortgagebroker is betting rates will drop and he can increase his loan profit. If ratesgo up and the broker failed to lock in the interest rate, there’s little theborrower can do when the broker says “sorry” but your rate wasn’tlocked in.
An interesting trick that I didn’t know about is howmortgage lenders can get credit report errors corrected extra fast whennecessary. The author shares how sales reps from the credit bureaus can speedcorrections and FICO (Fair Isaac Corp.) improvements faster than can theborrower dealing direct with the credit bureaus.
This “tell all” book is even better than Reed’sfirst book “Mortgages 101.” Especially profitable reading is thesection about why it usually doesn’t pay for the borrower to pay any loan feepoints. One point equals 1 percent of the amount borrowed. The author says eachone-point loan fee should result in a one-fourth percent mortgage-interest-ratereduction.
Although Reed doesn’t discourage paying loan points whenbuying a home (because home acquisition loan points are tax-deductibleinterest), he strongly warns against paying loan points when refinancing(because any loan points paid other than for a home acquisition mortgage canonly be deducted over the life of the mortgage).
Chapter topics include “Where Mortgage Loans ReallyCome From”; “The Mortgage Loan Process”; “RiskElements”; “Closing Costs”; “Interest Rates”; “Credit”;”Loan Choices”; “Refinancing”; and “Buying andBuilding New.”
This is one of the very few real estate books that cannot berecommended too highly. It is easy to understand, but, more importantly, itincludes mortgage secrets not revealed elsewhere. On my scale of one to 10,this outstanding book rates an off-the-chart 12.
“Mortgage Confidential,” by David Reed (AMACOMPublishing, New York), 2007, $16.95, 199 pages; available in stock or byspecial order at local bookstores, public libraries and
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Copyright 2007 Inman News