Why do some Mortgage companies make HUGE changes at the last minute?

Factual Questions
1

I hope for this to be a meaningful question, not a rant that disappears into the depths of the Pit…

When I both got and re-financed my mortgage, we greased through with no problems. We had one very minor issue with an old car loan, but it was not enough to affect our approvals, and was cleared up well before closing on the house. We knew walking in exactly how much $ the deal would cost us, and even had a bank draft for the amount of the down payment.

But I’ve now had 2 close friends who walked into closings not knowing how much the APR is going to be, or what the down payment was. In one case, the rate went up nearly 5 points from what was quoted. In this more recent one, the lender changed the amount they wanted as a down payment; nearly doubling the amount due at the signing. This was while the couple was at the signing!

Now, I’ve used large, established financial institutions, like BofA, for my transactions. The company that was used in both of the cases above was a mortgage company, and struck me as being less “stable”. Although, in one case it was Countrywide Mortgage, which is not small either.

I would also guess that my credit rating helped; we have a fairly high credit rating.

But I’m wondering how/why companies would wait until the last second before announcing these sweeping changes to the mortgage?

Eli

2

Doesn’t HUD require a 24 hour inspection period for all closing paperwork be offered? I know I took advantage of it for my first home, and was offered for the second home. And no, neither were HUD financed.

Other than that, I wonder if they just live in crappy states. Who would walk into a closing not knowing the financial details? You typically have to have a cashiers check for the money down and fees.

3

We all live in Minnesota, which isn’t known for it’s loose financial morals.

Could it be that because of the huge market glut of mortgage dealers, the brokers are promising more than they can deliver, just to get the business in the door? Some sort of “bait & switch” tactics?

Eli

4

Never heard of not knowing how much to bring with you to closing. I was required to have a cashier’s check with the amount ready ahead of time and there is no way in the world I’d enter a 30 year agreement without knowing well ahead of time what my interest rate would be.

5

I’m a little confused. If they didn’t know what the rate was going to be, how did they know it increased by 5 points?

Also, did the friends ask why the numbers had changed? The only thing like this I’ve heard of are extra charges tacked on at the last minute. But even this is rare I think because it will either change the amount needed upfront, for which the people are probably bringing in a cashier’s check for a set amount, or change the amount borrowed, which could put the loan in a different category if the person had expected only 80% or 90% to be financed (especially going above 80% could then require mortgate insurance).

6

My experience may cast some light. When I bought a house about 8 years ago, I was told within 24 hours of closing that the rate was going up 1% (I think). The reason given was that I was not a US resident. Now, this was not a secret, so why did it crop up at the last minute? I was told that the mortgage company attempts to sell the loan, but waits until very close to closing as only then are they confident it is going to go through.

I immediately tried to get a different loan, but other companies also told me the rate would be higher for being non-resident.

I suspect the original mortgage company screwed up initially, and this came to light when they tried to sell the loan. Maybe other people suffer late changes for similar reasons.

7

Sounds like a standard bait and switch scam. They do it because they can get away with it.

Why on earth would they agree to such a thing?

8

The broker told them (verbally) that the rate would be 5.25%. When they went to sign the mortgage paperwork, the paperwork read 5.75%. In this case, no real information was given, other than it was “the best deal” the broker could get them.

Needless to say, they walked away from the mortgage.

In the more recent case, the broker assured them that he could get a mortgage with a $7,000 down payment. The morning of the closing, he called to say that the best he could do was $14,000, and so they would need to bring the difference to the closing.

Like I said in my second post, it feels like a “bait & switch” by the broker, even if it’s out of his/her control.

Eli

9

This is standard negotiation technique. The longer you work with the mortgage company, the more time and effort (and possibly money) you have invested in the deal. People tend not to want to walk away from a deal they’ve become heavily invested in. If they tell you up front it’s a $14,000 down payment, you may just walk away. But if they tell you it’s $7,000 and get you heavily involved, you’re less likely to bail out when they quote you $14,000 further down the road.

Similarly, if you’re in a time crunch, you may not have time to switch lenders. They can tweak you right at the end and there’s nothing you can do about it.

Negotiation lesson #1: Always be prepared to walk away from a deal, right up until the moment it’s closed. Otherwise, the other party has you by the short hairs.

10

One point = one percent. Am I the only one that though the OP was talking about 5 percentage points? :smack:

11

In usual interest rate parlance, one point can mean one percentage point or one basis point. A basis point is one one-hndredth of a percentage point. The loan in question increased by half a percentage point or 50 basis points – not 5 points in any case.

12

One of my sisters is a mortgage broker (who just got me the loan for the property I am signing off on today - rah!)

What I’ve learned from her is that, when interest rates are rising, banks will look for any picayune thing to cancel a lock so that a borrower has to get a new rate.

13

I write decisioning and pricing software for one of the five largest mortgage companies in the universe. The answer I would give: because the people responsible for specifying software requirements haven’t the first clue about how to write software requirements, and thus the systems for processing your loan data suffer from the same schizophrenic, redundant, wasteful, data-corrupting, resource-draining, audit-enforced, cover-your-ass-at-all-costs, who-cares-as-long-as-we-make-the-delivery-date problems that afflict those who design said systems’ requirements. Basically, idiots who try to design idiot-proof software come up with idiotic systems that generate errors that end up costing money, and guess who gets to pay for it?

Not that I’m biased or anything. But from my perspective, the above, while perhaps a rant, is not an overstatement.

And that’s only part of the problem: many mortgage companies delegate the decisioning/pricing process to an approved government-sponsored entity, namely Fannie Mae or Freddie Mac. Toward the end of the application’s life-cycle, at some point, usually a human being will have to review all the documents and make adjustments to the data as necessary. A significant enough error will trigger a need to “re-price” the loan and thus a last-minute change to a customer’s rate. In many cases these errors are beyond the specific company’s control: a liability such as a car loan might be listed twice in the borrower’s credit report (in which case, clearing up the error would actually benefit the borrower, but probably would have affected the decision in the first place).

So in short, it’s the manual audit at the end of the process, where an actual human reconciles the data, corrects errors in the application, and–if necessary–reprices. As I mentioned above, many of these errors are the result of poorly designed or needlessly-complicated software systems, many are the result of bad data, fewer (IME) are the result of human error. Smaller companies don’t have such complex systems, partly because they don’t need it, partly because smaller companies usually work within a given state or locality and thus don’t have to keep track of mortgage processes that apply to any given location in the country.

My advice: prior to applying, pull your own credit reports from all three major credit agencies and look for errors, inconsistencies, duplicate entries. Beyond that, you’re at the mercy of some beaureaucrat’s idea of “process improvement.”

14

Because they are thieving financial institutions that figure they have you over a barrel, overdosing with anxiety, you will agree to anything at this point. IMHO.

15

Which utterly brings us back to ‘if the deal isn’t what you were promised walk away’.

Remember, YOU are paying the mortgage firms tens of thousands (possibly hundreds of thousands) of dollars in interest over the course of the loan. YOU ARE THE ONE DOING THEM A FAVOR.

Never lose that fact. If you bolt when they change things they’ll come back at you with a better rate.

16

I agree with the prior two posts. If you get ANY surprises at settlement you should balk. It takes a lot of fortitude to walk at that point, but if you do, I guarantee everyone involved will try to get the deal back on the table. ( I have never done this with a house settlement so take this with a grain of salt.)

Your house contract should have a contingency for financing, although in this housing market I do not know if this is still common or acceptable to most sellers.

The same thing applies to buying anything. When it becomes clear that you are married to the deal then you have completely lost your negotiating position.

17

Hi…Escrow Officer here…
(Standard disclaimer: This is not legal advice, I am not your Escrow Officer, laws may vary in your state, etc. etc.)

First of all, I want to point out to that if you are involved in a purchase transaction you should consult with your Realtor before just “walking away” as some posters have advised above. Remember that you have a contractual obligation to the seller…deciding not to close can leave you open to losing your earnest money, or even being sued. Always speak with your Realtor and find out what the implications are in your case.

Originally posted by Balthisar:

First let’s define “HUD”. In this case, we’re referring to the Department of Housing and Urban Development, which oversees all real estate transactions involving a lender…not to be confused with “HUD” homes (foreclosed properties being sold off). And yes, federal law (Real Estate Settlement Procedures Act) does state that you have the right to inspect your settlement statement 24 hours in advance.

Unfortunately this doesn’t always happen. Usually it’s because the lender has not finished underwriting or preparing the figures for your loan until the last minute (sometimes because of their loan volume, sometimes because of a last minute credit issue, sometimes because of a late appraisal…reasons vary. It’s like asking why the sky is blue).

The best thing I can tell you to do to prevent ugly surprises at the closing table is to be aware that the things mentioned in the OP do happen, and to stay on top of your lender. Tell them right up front (and remind often) if you want to see your closing statement in advance. Get your rate lock in writing. Call your loan officer a day or two ahead and see what is going on with your loan.

No, you shouldn’t have to do all that. A good loan officer will go out of their way to keep you informed, and a good Realtor will ride everyone’s butt to get things as much in advance as possible. But if the people working for you in the transaction aren’t being quite so…uh…vigilant, don’t be afraid to stand up for yourself.

18

We just refinanced and comparison-quoted with a few places. It is bait and switch, pure and simple.

We ended up going with our original mort brokers that we had used years previously because we remembered they treated us nicely, even though we didn’t think we’d get a better deal. It turned out that they were still nice, completely honest and straight forward. They have made us customers for life.

There is, however, a certain large financial company (rhymes with Smells Fargo) that we discovered are plaid-suited-used-car-salesmen-bait-n-switching-bastards.