Protect Yourself From Mortgage Bait and Switch

By Sheryl Landrum
CMR Columnist

I lost a loan this week to a lender who told my client, the owner of a Napa bed and breakfast, that he could give him a cash-out refinance home mortgage even though the property is commercial. I told my borrower I could not give him a residential mortgage; however, if someone else could do it, go for it. I also told my borrower to ask for a Good Faith Estimate and a Truth-in-Lending Disclosure from this lender and I would review the documents to make sure the loan he thought he was getting was the home loan he wanted. Why these two documents?

A Good Faith Estimate (GFE) is a close estimation of the cost of the mortgage you are applying for. It discloses any points or origination fees, lender fees, appraisal fees, title and escrow fees, pre-paid interest and impounds, as well as any other miscellaneous fees and costs that are due at closing. According to the Real Estate Settlement Procedures Act (RESPA), the GFE must be sent to the borrower within three days of receiving a home loan application. Do not proceed with a mortgage application until you have received a GFE; before closing escrow, also, ask for an estimated settlement agreement from escrow to make sure your estimated costs are correct.

A Truth-in-Lending Disclosure is also required by RESPA for mortgage loans and will give you information on the cost of the loan expressed as an annual percentage rate (APR), the actual note rate, and any restrictions and/or prepayment penalties involved. This information will also allow you to compare different lenders and mortgage loan products and to ensure that you are getting the home loan you think you are.

With these two documents and a licensed loan officer you have recourse if the mortgage loan you get at the close of escrow is not the loan you negotiated. As for my borrower, I expect Ill be hearing from him soon.

About the Author
Sheryl Landrum is a Senior Loan Officer with Charter Funding in Carlsbad, California and a freelance writer specializing in mortgage issues.

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