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July 21, 2003
"Can I
trust [name of mortgage lender]?�
�Where can I go to get information about [name of mortgage lender]?
Since
I began fielding questions about mortgages in 1998, these have been among the
questions I have been asked most frequently.
Very seldom am I able to do more than guess at an answer.
What
mortgage shoppers want is a list of lenders who provide the information shoppers
need to make intelligent decisions, and who treat them fairly after they become
applicants and have committed themselves to the lender.
The UML program was developed to meet this need.
Lenders who comply with the requirements of the program will be listed on
my web site. The requirements, and
how they meet the needs of shoppers, are shown below.
Requirement
1: A UML Provides Quick Access
to the Market Niches it Prices On-Line.
The home loan
market in the US is divided into millions of market niches and no one lender
serves them all. Shoppers need a quick way to determine whether a particular
lender prices the niche in which that shopper falls. UMLs provide this information in a table of my design that is
easily accessed on its web site. If
the UML does not serve the shopper�s niche, she can go elsewhere without
wasting time.
If
the shopper�s niche is priced on-line:
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The
shopper can make valid comparisons of one UML�s prices against those of
another, prior to paying any fees, and prior to filling out an application.
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After
selecting the lender and applying for the desired loan, the applicant is not
exposed to a future price change based on information that the lender claims
not to have had at the time of the original quote.
-
The
applicant who elects to float rather than lock can monitor the price as it
is reset daily with the market, and therefore will not be overcharged on the
lock day.
Requirement
2: A UML includes its fixed-dollar fees, including credit and
appraisal charges, in its price and guarantees them to closing.
This assures borrowers that price
information is complete, and that new fees won�t be added, or existing ones
increased, after they have committed themselves to working with the selected
lender.
Requirement
3: A
UML Provides a Clear Explanation of its Lock Requirements: Mortgage
shoppers need to know when they have the discretion to
lock. The explanation should
include any required payments, processes that must be completed, how expired
locks are handled, and whether the borrower is committed as well as the UML.
Requirement
4: A UML discloses all the information about its ARMs needed by shoppers to
make intelligent decisions. It
is very difficult today to obtain the information about ARMs that is needed to
make an informed decision. Loan
officers selling ARMs stress one or another feature, usually the index, and
leave the remainder of the ARM�s features in the dark.
Shoppers need information on potential ARM performance � what will
happen to the interest rate and mortgage payment under assumptions about future
interest rates that make sense to the shopper.
UMLs
can comply with this rule in two ways. One
way is to offer schedules of monthly payment and interest rate under no-change
and worst-case scenarios. The first
assumes that the most recent value of the index remains unchanged through the
life of the loan, while the second assumes that the ARM rate increases by the
maximum amount allowed in the contract.
The
alternative is to provide the information needed for the shopper to calculate
these (and perhaps other) scenarios using calculators on my web site or other
sites. The required information is
shown in Information Needed to Evaluate an ARM on my web site.
Requirement
5: A UML informs borrowers if its loan officers are
compensated in a way that gives them a financial incentive to overcharge the
borrower. Many
lenders allow loan officers to charge overages, and to share them.
An overage is a price higher than the
price delivered to the loan officer by the lender�s pricing department.
A loan officer who shares overages is in a conflict situation with the
customer that the customer ought to know about.
At
this time, there is one UML: www.ELoan.com.
Keep posted for additions. Meanwhile,
you can use Eloan to see the information you need to pry from other lenders to
make sensible selections.
Copyright
Jack Guttentag 2003
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