A Closer Look at The Mortgage Industry

Foreclosures at rise and more people falling behind on their mortgage payments is the headline everywhere. The reason for this is that many borrowers have adjustable mortgages and they don't get out of a bad deal before it's too late. Yes, the Federal Reserve has lowered the Fed Rate and Discount Rate but that is not enough to stop foreclosures or help people who are already late one mortgage payment.

Many borrowers bought a property they can't afford with negative amortization loans which have the options to pay 1%-2% rate instead of the real rate which is 7% or 8%. The difference of 5% or 6% they are not paying is added to their mortgage balance and decreases their equity in the home. Then it becomes hard to refinance that loan because there's no equity left. There are brokers who prey on inexperienced borrowers and sell them these teaser rates on which they make a huge commission. Brokers don’t care what will happen to you within 6 months. All they care about is making money and you need to watch out!

What you need to know?
1. Credit Scores: Know your credit scores
(Even if you were told your credit is not good you should get a report yourself).

2. Rates/Term: Apply for free rate quotes only from high rated companies



3. YSP: Look out for YSP (yield spread premium) on the Good Faith Estimate. YSP is the fee the lender will pay to the broker for selling a certain rate. If it shows more than 2%+ you're getting a really bad deal! Also, look out for origination fees and discount fees. If you're being charged more than 1.5% you should get out of that deal and find another broker or lender.

4. RATE LOCK: When you find a good offer and you like the rates you should request a "rate lock" and ask the loan officer to send you a copy of the rate lock immediately. A lot of loan officers will quote you a rate and tell you they locked it, but they didn't. Other things borrowers need to look out for is prepayment penalties.

5. PREPAYMENT PENALTIES: Always ask if there are any prepayment penalties. When you have prepayment penalty in your loan agreement you can not pay off or refinance the loan within couple years, if you do you will pay fees.

At closing look at the Settlement sheet which has all the fees associated with closing the deal and see if terms and fees have changed from the Good Faith Estimate you signed. Look for the paper that states "Note". This shows exactly what your interest and term is going to be.