Deceptive Banker/Broker Advertising

Its an unfortunate truth but much of the lending industry, to varying degrees is trying to dupe you as a potential borrower. The average consumer is too overwhelmed by the complexity of the process, the huge volume of competing claims and advertising, the continually changing and evolving sales tactics of brokers and loan officers as well as the general stress of the experience itself. Their are few books written and too much disinformation in general on the internet itself for even an informed consumer to be able to make sense of the mortgage mess themselves. Most of the time consumers are piecing together bits of informations they acquire here and there and trying figure what is true and what is not. Consumers shouldn't feel bad though, even mortgage industry employees are often duped by their employers into actually believing some of the misinformation they are feeding you. Not everything is the fault of the loan officer on the other end of the phone. Often times they quote rates they are told too and are selectively misguided by a sales manager with much more experience. The overriding goal of getting your application is set for them and if they do not follow company dictates they will probably be out looking for another job very soon. Most will quit the industry after they have tried working at 2 or 3 firms and finding out many companies suffer from at least one major affliction that greatly hinders their ability to close loans and service customers the way a customer should be treated.

Examples and a general outline of what many consumers will encounter when shopping for a mortgage:

Deceptive Advertising/Bait and Switch - Competition in the mortgage industry is very intense and most, almost all companies out there, from your local mortgage broker, to the most well known largest national lenders, will use a variety of techniques to make their ad look more attractive. Companies often advertise rates they cannot deliver, always trying to edge out the competition by an 1/8 or 1/4 percent. They are hoping by the time you actually see a newspaper or TV ad, rates will have changed (click here to read more about rates and rateshopping) and they can then easily explain away their unexplicably low advertised rate. Most advertisements are geared towards the optimal borrower which is a Full Doc (for different doc types and how they affect your rate click here) customer with good credit seeking to put down at least 20%. Rates for other customers often wind up higher, because rates are based on risk and the less documentation you show, the lower the down payment, or FICO score, the more your rate starts to climb. This often causes frustration among borrowers because its a very important fact, but it is often one of the last things they hear until they actually fill out an application. The first goal among many lenders is to actually get your application, and then explain things such as Doc types and ratelocks.

Playing with APRs is another common advertising trick - That extremely low rate you see may appear with a slightly higher APR and the loan officer you call may not explain right away it usually translates into an extra point or two until they send out your good faith estimate days later. APRs are a very, very common way of hiding fees and points in order to look more competitive.

Many lenders often skip advertising rates and points and instead focus in on a monthly payment. $XXX amount of dollars per $100,000 borrowed as an example. Novice mortgage shoppers often fall for the trick and later find out that the low monthly payment was either for an artificially low teaser rate adjustable mortgage or is completely fictitious number to begin with. The goal is to get the consumer to call, run credits, do a basic prequalification and then simply tell them they do not qualify for the lower payment and try to switch them to another loan product.

Artificially low rates and monthly payments cause a huge amount of confusion among mortgage shoppers. They create false expectations and lead consumers to plan poorly for future purchases. Consumers get used to seeing so many bogus rates in the newspaper, on the internet and TV that when they do actually find an honest lender with a quote much closer to reality, they are already embittered, unable to determine what is true and what is not and frustrated from having to sort out and process all the competing claims.

The prevalence of deceptive advertising causes many difficulties for lenders that want to play an honest game. Since they are competing against so much disinformation, the temptation for them to start fibbing becomes too great and they slowly begin to engage in bad practices like quoting lowball rates and  variations of the other techniques mentioned on this page and throughout the site

Sending Out Misleading Good Faith Estimates - Many banks will try to make their offerings look juicier by excluding some costs on the GFEs (good faith estimate) they send out. They use a very liberal interpretation of the word "estimate" and since there is no law mandating exactly how accurate the GFE must be, they use that as opportunity to fudge the numbers. A common trick is to leave out soft closing costs such as tax and interest reserves in order to make their total closing cost number look much lower than their competitors. Totally unscrupulous lenders, of which their are quite a few, will leave out some hard costs such as title insurance and put them in later or at closing, hoping less than savvy borrowers wont notice. The worst lenders and mortgage brokers out there will send borrowers one set of costs and then when actually meeting them and taking an application have them sign another good faith they bring along with a different set of fees and if questioned explain it away by saying their loan, because their FICO score was not as high as originally expected, or the down payment is not big enough, will be much more work to close even when a borrower's profile has not changed much.

Ratelock Games And Playing With Rebates - Once a broker or a lender has you with a lowball rate, their are plenty of opportunities to raise it down the line, because rates in reality do change on a almost a daily basis. A good lender when rates change due to real market conditions will still keep you at the same wholesale/retail markup. A bad lender will try to fatten his margins. Almost all lenders play this game. The question is how far will they go in taking advantage of you. For more information on how retail/wholesale markups work, read our section on YSPs and rate games.

Tricks At The Closing Table or Right Before Closing - The worst mortgage offenders are brokers and bankers who when they spot a less than savvy borrower will actually try to extract another point or two from the borrower at closing or right before. They often try this on borrowers who are in desperate need of a refinance (because of mounting credit card bills) or must close by a certain date on a purchase. If they feel a customer is uninformed enough they may simply cook up a new set of numbers and pass them off as real costs explaining the old GFE (Good Faith Estimate) as just an estimate or hope that the borrower doesn't notice at all.

In order to protect yourself from deceptive sales tactics, browse our site more and familiarize yourself more deeply with different steps in the mortgage process. Deceptive tactics vary from lender to lender, they can be very obvious and easy to spot or much more subtle. Once you have a basic understanding of terminology such as yield spread premiums and how they affect the rate you receive, different mortgage doc types, the impact of fico scores, etc. you'll begin to get an more thorough understanding of the many angles/tactics a mortgage salesperson can use to extract higher rates and fees. When you are ready to actually mortgage shop, LoanShoppingPros can then provide you with further assistance finding  more honest lenders in the industry. Consumers must still do their own due diligence but we can greatly increase your chances of finding and closing with the right lenders from the start. LoanShoppingPros can help unravel the mess caused by deceptive ads and bring more clarity to the mortgage process. By screening our lender network and weeding out major advertising offenders (and many minor ones) we take the noise out of the mortgage shopping so you as a consumer are able to make better choices. Lenders who are found trying to abuse our referrals are dropped from the LoanShoppingPros network.