If you are shopping for a mortgage be aware of scrupulous loan officers. Shopping for a mortgage can be a very tricky and stressful situation without the right information and guidance from a professional Realtor to assist you in your search or offer a referral contact. When shopping for a mortgage always inquire about any hidden costs or fees that may be associated with the mortgage and charged to you at closing. According to an article by Mr. Kenneth R. Harney posted under the “The Nations Housing” article in the Washington Post on August 3, 2013, there is another issue you must protect yourself against. It’s called upselling, where the mortgage lender steers you into higher cost loan programs with terms that increase the lender’s profits and cost you more at closing. Although mortgage lenders used upselling during the housing boom years, they have been dormant until recently.
Mortgage lenders usually charge discount points, loan origination, or other hidden fees to process your loan application. But with upselling, the loan officers convince you to sign up for a higher cost loan program that may include higher interest rates and other associated fees. This tactic allows loan officers to receive a higher pay or bonuses for signing you up for these higher cost programs. The higher the interest rate of the loans closed by a loan officer…..the higher the loan officer’s quarterly bonus will be.
According to the article, the Federal Reserve Board banned abusive practices such as upselling in 2011. However, after a lawsuit was filed by Consumer Financial Protection Bureau recently, this may suggest that hidden upselling ploys might be back — alive and well. Studies have shown that Hispanics and other Minorities are victimized at a higher rate than other races with schemes such as upselling.
Mortgage industry experts agree that as a result of intensive federal regulatory scrutiny, upselling schemes are less common today than during the early years of the past decade. At that time, lenders circulated rate schedules for loan officers – especially in the subprime arena – with sliding scales showing the extra money they could earn by steering unsuspecting applicants into higher-priced deals. For instance, you may be qualified for a 30-year fixed rate at 7 percent, but if the loan officer can convince you that the best available rate is 7 ½ or 8 percent, the loan officer would earn more commissions.
Overall, when shopping for a mortgage your best bet is to educate yourself first, on the loan market to avoid overpaying. Shop around… and talk to other mortgage companies to compare rates, terms and loan fees. Interest rates are significant to your specific credit score, down payment, capacity to repay, bank reserves and other factors that determine your risk factor. If you are shopping for a mortgage have a firm understanding of what you qualify for and deserve– it will be tougher for a loan officer to upsell you during your search for a home mortgage.