July 21st, 2008 2:24 PM by BILL WILBANKS
Do Consumers Understand Loan Disclosures?
Simple Answer: NO
In an ongoing attempt to understand the cause and effect of the issues facing the real estate markets today, in January of 2008 the Board of Governors of the Federal Reserve System ordered a testing of what consumers understood in relation to mortgage disclosures given to them by mortgage brokers and loan officers with lenders. It was done across various geographical areas of the United States and demographic models. After extensive research, Macro International, Inc., the firm chosen to do the research, published the results on July 10, 2008 to the Board of Governors of the Federal Reserve.
Some interesting facts came to my attention. The report summary is paraphrased below:
So many misconceptions and where to start, right? Based on bullet point one and two above, most participants in the test incorrectly believe a mortgage person, whether they work for a mortgage broker or a direct lender, work in their best interest. Both work for a "living" and will price you accordingly, not unlike two Ford or Chevy dealers who sell the same product. The only way to be sure is to shop around.
Bullet point three is one of the oldest misconceptions. Whether you go to a lender or a mortgage broker, the sales force has to get paid to serve you and you pay them. It does not happen in a vacuum. You must shop price and product. To draw a comparison you might think of an independent insurance agent who deals with hundreds of providers offering varied coverages, services and prices. They usually have many more options to offer than the one company down the street that only offers "their" in-house widget. Do you want to pay more today for a recognized "household" name? We don't think it's that's simple any longer.
Under Florida law, bullet point four does not apply to "lenders" since lenders are exempt from this disclosure and don't have to tell you what their commission or profit is when they make your loan, but Florida Mortgage Brokers must. All you have to do is compare the total deal costs. We all price the same way and may even send your loan to the same wholesalers. Mortgage Brokers are the only licensee in Florida that fully disclose it to you folks...That's a FACT!
Bullet point five is a prime example of a good idea gone bad. All first mortgage lenders in Florida require a "Mortgage Brokerage Origination Agreement " on every loan submission from a mortgage broker. Lenders do not, and have not, had to provide this disclosure as to how they get paid nor how much since the law changed in October, 1992. They had better lobbyists I guess. But the consumer gets full disclosure from a broker period. When is the last time a lender, a banker, a car dealer, your grocer or anyone fully disclosed all the sources of their income in your price and how much "Profit" you were paying them BEFORE they gave you the service? FLORIDA MORTGAGE BROKERS MUST DO SO BY LAW!
Bullet point six is a simple answer. A consumer can select an interest level one of three ways.
You may select any of the three above whether you go to a lender loan office or mortgage broker. The question is: Who has the best price/program? On a conforming 30 year fixed rate for example, I might expect there to be about a ¼% rate difference between the three examples.
The last bullet point is what it's really all about! SHOPPING AROUND! No matter what. IT'S ALL ABOUT PRICE AND SERVICE. Do your homework, please. I sell price every day. That's my product. But if you don't shop around and you pay too much...don't blame the broker or the lender.
"Highlighting and Bolding" of data was added for emphasis.
Bill Wilbanks, Florida Mortgage Broker
(407)647-4440 or (800)646-4019