“They can pay off credit cards, remodel a kitchen, install a swimming pool, or travel to Las Vegas. “Do whatever you want,” he tells them. “Imagine your home is like an ATM.”
Source: Bloomberg article on a local Utah mortgage business.
What do ATM’s and this mortgage company have in common? They charge per transaction. And the goal is to have as many as possible.
The first uncomfortable truth that you need to be aware of.
1. Veterans are the most taken advantage category of mortgage borrowers.
The root cause is a combination of overly accommodating VA guidelines, along with Veterans trusting that companies won’t blatantly take advantage of them.
Sprinkled on top is the willful ignorance from even the best intended mortgage loan officers who don’t question their jobs or their employers.
VA loans are the only loans that allow cash-out refinances up to 100% loan to value.
The cash cow for a dishonest mortgage mill in an appreciating market?
Buy the internet lead, flaunt made up credentials and close the initial purchase loan. Hopefully the veteran doesn’t shop around – dodged the first bullet. Contact said veteran to refinance him/her to a lower interest rate with a VA ARM loan that’s fixed for the first few years. Roll thousands of dollars worth of fees into the transaction, and suck up a nice chunk of equity.
Once the ARM loan comes close to adjusting, contact said borrower again to refinance to a fixed rate. And while they’re at it, why not make it a cash-out? Surely there’s some debt that could be paid off, some trips that could be taken, some dollars to be spent. Roll more closing costs into that new loan and it’s a gift that keeps on giving! Or taking, depending on which side of the transaction you are.
Luckily, VA finally caught on the the scheme. Updated guidelines pertaining to VA cash-outs are in effect as of February 15th, 2019. You can read the boring details here.
Second uncomfortable mortgage truth.
2. The referrals you receive will often lead you astray
Yes, we all have a family member or a friend that highly recommends an agent or a mortgage loan officer.
But just because they had a good experience doesn’t mean you will. “Trust, but verify” is one of my guiding principles for a reason. Your home purchase is a big investment, but it’s also a big pay day for people in the industry.
Protect yourself. Don’t let yourself be pushed into using a preferred lender in exchange for shiny $$ incentives. Don’t blindly trust a “lender match” guarantee – shop around. Don’t sign an agreement with a real estate agent that is not watching out for your best interest, and that reflects in the referrals they’re making.
I know plenty of agents that walk around with marketing materials paid for by preferred lenders. Some really don’t care, but most are simply unaware that the cost is reflected in the interest rate that you will pay for what’s often a 30 year home loan.
Last but not least.
3.When banks compete, your information is sold for a pretty penny
Technology is flashy and promises a lot of things. But a third party website that tells you they’ll connect you to the best mortgage loan deal, or the best local real estate agent has only one goal. To capture and sell your information to the highest bidder.
You may think it’s an honest way of doing business by providing a valuable service. Until you read something like this clickbait article that calls cash-out refinances a “special renovation fund” that “might end soon”.
You click the misleading ad, mortgage companies pay them for the lead, and in return- they jack up your interest rates. Fair enough?
I can’t emphasize this enough. Do your research. If something sounds too good to be true, then it probably is.
Contact me for a hassle free, no credit pull second opinion on any shiny lender incentive or pushy real estate agent referral. You’ll either save money, or gain peace of mind.