When Carolyn Bond's parents signed for an easy-qualifier second home purchase loan this summer, the lender gave the broker what she calls a "rebate" amounting to about $4,000.

Her parents were unaware of the rebate until closing and when the couple asked about the cash, the broker was offended, but offered to pick up a small fee of $175.

"This was all done quietly behind their back. When they asked the broker about this the broker replied their mortgage company had exceeded their quota with this particular nationwide lender and consequently they were getting a larger rebate. The broker assured my parents this wasn't money coming from their pockets," said Bond of Bond Marketing in Tustin, CA.

"To add insult to injury, this broker has been a good friend of ours for some seven years," she added.

Chances are the "rebate" was effectively coming from the home buyers' pockets if the rebate was what's called a yield spread premium or YSP.

YSPs are points paid by lenders to brokers when brokers get borrowers to pay a higher rate. When the borrower pays a lower rate, brokers typically get a smaller YSP. The problem is, borrowers won't know what the broker is getting until closing day. By law, that's the soonest lenders and brokers must reveal YSP.

But that's just one of the lies by omission lenders tell -- or don't -- according to Smart Money magazine's "Ten Things Your Lender Won't Tell You" written by Anne Kadet.

One expert questioned some of Smart Money's findings, which are based on case studies and interviews with consumers and industry professionals.

Given the current atmosphere of civil suits against the lending industry and heavy complaint loads, most lenders are upfront about what you'll pay if you press them.

The suits and complaints, however do reveal too many lenders aren't always forthcoming about all charges and what you don't know can cost you.

"The problem is that lying has become ingrained in the way many mortgage lenders do business. As long as there are no penalties for lying, unethical lenders simply will not stop doing it," says Randy Johnson, author of "How to Save Thousands of Dollars on Your Home Mortgage" (John Wiley & Sons, $14.95).

"An answer, of course, is to do business with someone who is trustworthy, someone referred by a friend who has used the lender," said Johnson, who is also owner of Independence Mortgage Company in Newport Beach, CA.

Experts say to find a trustworthy lender or broker seek referrals from family, friends, co-workers and others you trust who also have recently completed a satisfactory loan closing.

Otherwise, according to Smart Money, you'll have to navigate a gauntlet of untold truths.

Smart Money says, along with not disclosing the potential financial impact of YSPs, mortgage lenders aren't upfront about how long a refinance could take and they don't clue you to the extra costs you could incur because of the delay; they don't tell you "zero percent" financing can have hidden costs; they don't school you how to really benefit from prepaying your mortgage; they don't explain all the mortgage fees, some of which are bloated or charged for services that weren't rendered and they will "give you a severe case of PMI".

PMI is private mortgage insurance that's tacked onto mortgages that are more than 80 percent of the home's value. PMI allows you to obtain a loan when you have less than 20 percent down, by protecting lenders from you defaulting. Lenders say those who pay less than 20 percent down or more likely to default than those who pay 20 percent or more down.

What lenders don't tell you, Smart Money says, is how difficult they will make it for you to cancel PMI when state and federal laws say you can -- typically when your home value appreciates to create sufficient equity, about 20 percent. Some lenders will force you to use their appraiser to prove the value or otherwise make the removal process tedious.

"This is just a case of a company trying to break the law and getting busted. Removal of PMI is regulated at the federal and state levels. If the consumer follows the steps, they get PMI removed. If any lender refuses to follow the steps they get busted," says Richard Calhoun, broker owner of Creekside Realty in San Jose, CA, who says Smart Money is also off base on other items.

Smart Money says lenders don't always report your payment history to credit bureaus especially if you are a model borrower because that would boost your credit score and entitle you to lower rates. The lender would rather you pay more. Smart Money quotes an official from TransUnion who agrees with the premise.

Calhoun doesn't buy it.

"I don't think that there is a single major lender that does not report. Under the current scoring system the lack of a loan doesn't hurt the consumer. I'd love to have a list of lenders that don't report. (If this was true) I'd refinance with one of these lenders and then forget that I have these loans on my next application so that I can leverage my income. Give me a break," said Calhoun.

Published: August 22, 2002

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Broderick Perkins parlayed a career in old-school journalism into a contemporary digital news service that really hits home. The award-winning consumer journalist, originally from Wilmington, DE, is founder, publisher and executive editor of the bootstrap DeadlineNews Group, a Silicon Valley-based editorial content and consulting service specializing in residential real estate, consumer news and related editorial consulting services. The DeadlineNews Group includes the website, DeadlineNews.com, offering real estate editorial content and consulting services, and its back shop, the Deadline Newsroom, an open house on news that really hits home. Perkins obtained his formal journalism education from University of Delaware and a journalism boot camp, the Institute of Journalism Education at the University of California-Berkeley. He went on to 20 years of service as a daily newspaper journalist at the Wilmington, DE News Journal and San Jose, CA Mercury News. Perkins covered housing on the San Jose Mercury News reporting team which earned a General News Reporting Pulitzer Prize in 1989 for coverage of the Loma Prieta earthquake. He has also produced real estate, consumer and small business content for the Wall Street Journal, Los Angeles Times, RealtyTimes.com, Nolo.com, Better Homes and Gardens, the National Association of Realtors, Homestore/Move and Intuit/Quicken among more than three dozen publications. In addition to managing the DeadlineNews Group, Perkins most recently served as chief editorial consultant for Nolo's Essential Guide To Buying Your First Home, Nolo, and writes real estate television scripts for RealtyTimes.com.