Bait & Switch, Alive &
Well in the Mortgage Business
Just about everyone has heard of the old
"bait & switch". Just about everyone could give an example or two
of how it's been tried on them too. Even those who think they
don't know what it is will recognize it when it's explained.
The Basics...
An unscrupulous mortgage lender runs an
ad offering a 30-year fixed mortgage at 5.875% - an incredible price!
He has no real intention of getting you that rate as advertised however.
His advertised rate is merely the "bait" to entice you, the consumer, to
contact him, to tempt you into picking up the phone or walking in his
door. The rate IS attainable but only 1 out of 1000 homeowners
would actually qualify for it or want to for that matter. He's not
doing anything wrong because the rate IS available...to somebody.
Once you've made contact and the scammer
has your undivided attention, the "switch" and sales pitch begins.
He'll tell you why the rate they advertised is not attainable for you.
He may initially sympathize with you, telling you that you just don't
qualify for that rate but he could get you qualified for 6.25% if you
allow him to get started right away.
Sometimes, the real shysters won't let
you know that the rate has changed until you are well into the mortgage
loan application, that way you will just be frustrated and continue
on with him not wanting to have to start over with someone else.
Of course, you think he's being honest.
He provided a good reason why the rate initially advertised isn't
available to you. Perhaps your loan-to-value ratio is the reason
or your credit score is a little lower than initially expected or your
loan size has changed or your property doesn't fit the guidelines for
that particular rate. He will make it sound good and you will be
convinced - he's done this before so he knows how to make you believe
him.
But the entire time, he knows that 99% of
the people that call on his advertised rate won't qualify for it - but
that doesn't matter to him. All that matters is that you pick up
the phone and call HIM and HE gets the chance to talk to you before
anyone else does.
Not Only Applies to
Rate...
"Bait & Switch" doesn't
only apply to rate, your final loan fees are certainly open to this scam.
The loan officer may quote you a nice low set of closing costs within
the time required by law but when you show up for closing, your fees
have escalated and are not what you were initially disclosed.
A lender can throw out a great
estimate with low
closing costs and then somewhere in the process, it would be at the very
end or right before the end when you're ready to sign all the paperwork,
it's switched for something else. Many borrowers simply sign
because they just don't want to have to start the entire process over
again OR their loan officer is very convincing at providing reasons why
the fees increased.
Protect Yourself...
First and foremost, get a
Good Faith Estimate from the lender right at
the beginning. The law requires the lender to provide you with
this within 3 days of application, but we're still constantly amazed at
the number of lenders that either don't provide this to the borrower or
provide them with incomplete or even blank forms!
Have an objective third party review the Good Faith
Estimate to ensure you are getting what you were told. Also,
it's a very good idea to have a third party review your
HUD-1 Settlement statement that you receive
prior to closing (you must request to receive this from your lender,
they must provide it 24 hours before closing).
We offer
this service to ensure
you are getting the deal you signed up for!
Secondly, research the different
types of loans, be wary of low rate deals and shop around - avoid high
pressure sales tactics. Deal with lenders who are committed
to looking out for your best interests like a
Residential Mortgage Advocate™.
Lastly, if you are dealing with a
lender and get to closing where your fees, rate or term is/are different
than you were told, walk away from the table - even if it means
you will have to extend your contract or delay your refinance. The
best way to combat the "bait & switch" is to not give in to it!
These lenders will get the message if they continue to have borrowers
walk out at closing not to return.
REMEMBER, if it sounds too good to be true, it probably is!
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