PHILADELPHIA -- Mortgage brokers offer some of the best deals in the mortgage store, but they also offer some of the worst -- and it's up to consumers to determine which is which.

The "Mortgage Professor," Jack Guttentag, professor of finance emeritus at the University of Pennsylvania's Wharton school, says he knows the tricks of the trade and techniques to help consumers keep from getting lost in the mortgage maze.

Low-balling. Some brokers advertise their lowest prices as a carrot and stick to lure customers. Once you are in the door, the broker lures you to another, more expensive product. Be wary of any rate that appears to be the lowest price offered by anyone. Use independent mortgage rate watchers such as HSH Associates to know what the going rates are. You can't get a bargain unless you know the going price.

Memory lapses. Sometimes a broker appears to forget certain fees until you are in to the mortgage too deep to bail. Require that the broker provide a written list of all fees to be paid, including items such as credit reports and appraisal fees. As the loan progresses, ask for a receipt for each fee.

Leaving locks unlocked. Fly-by-night brokers will charge you a rate lock fee and perhaps points but not tell the lender. If interest rates stay flat or fall, the broker pockets the lock premium from the lender. Ask your real estate for referrals and be wary of any broker without tenure of more than a few years. Get any lock in writing and make sure the lender knows the lock is on.

Rigging the market rate. -- You take a risk when you choose not to lock and decide to float the rate and points until the loan closes. Unfortunately, the "market rate" is whatever the broker says it is and some scandalous brokers up the price as the closing date approaches. Don't float past the point where you can no longer bail,

Charging excessive fees. If you are cash-short you could be vulnerable to brokers who promise not to charge for their services or even offer to pay some of the closing costs. The rate quoted on such deals is so astronomical that the lender will pay the broker points or negative points for the loan. If you need a negative point loan, consider the on-line mortgage market place, advises Guttentag, also founder of GHR Systems, Inc., which provides the electronic systems used by leading mortgage lenders and Internet developers to deliver mortgage information to loan officers, mortgage brokers and consumers.

Interim refinancing. If you want to avoid a significant prepayment penalty, a broker could induce you to refinance for more than you need to cover the prepayment penalty. The loan carriers a higher rate, but the second refinance, several months later, lowers the rate. Unfortunately, the cost of the double deal wipes out most of the gains from refinancing. Simply avoid interim refinancing plans.

For a detailed explanation of each "trick" and how you can counter the scams, use Guttentag's special form which presents a short list of critical questions to ask your mortgage broker. The answers will help protect you against the worst tricks, while providing the information you need for effective "apples-to-apples" comparison shopping. Avoid brokers who don't agree to answer the questions.

Real Times Interest Rate Watch

Published: April 8, 1999

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