Mortgage Broker Mistakes
Down payment gift from Mom and Dad doesn't count
Failure to utilize "Credit Rescoring"
Turning in the HUD-1 statement at the last minute
Mortgage documents in dumpsters
Down payment gift from Mom and Dad doesn't count
Lenders want to know where you got your down payment money. You may think to yourself, "I'm putting 10% down, why in the world do they care where I got the money?" The reason they care is because foreclosure rates are much lower on borrowers who earned the down payment money themselves. That means that lenders want to know where your down payment money came from. Did you earn it yourself, or did Dear Ole Dad or Aunt Margaret give it to you?
There is sort of a loophole in this whole down-payment-gift-thing. Lenders want to see that the down payment money has been in your account for at least 90 days. You prove this by showing bank statements. If the money has been in your possession for at least 90 days, they assume that you earned it. If the money just showed up in your account one week ago, the lender assumes that someone "gave" you the money for your down payment.
What is the mortgage broker mistake? A good mortgage broker will educate the borrower about making sure that the down payment money is in the borrower's checking account a full 90 days prior to applying for the loan. An incompetent mortgage broker won't bother to ask where you got your down payment money. Of course, a good mortgage broker can only do this if you called up six months prior to making a purchase to check into whether or not you are qualified for a loan. If you did make that call, then a good broker will follow up with questions like, "How much do you plan to put down" and "Will those funds be coming to you as a gift, or are they already in your checking or savings account?"
If you have already made an offer on a house, put down earnest money and suddenly realize that your down payment may not "count," give me a call so that I can look at the situation and recommend a course of action.
Failure to utilize "Credit Rescoring"
Most mortgage brokers don't do it because it costs money, and it's too much of a hassle. Some don't do it out of laziness. In order to take advantage of "rescoring," the credit bureaus require that you be a prospective client of a lender or mortgage broker. The rescoring request must originate from the lender or mortgage broker. That means that you can't do it yourself. The rules are set by the big three credit bureaus.
Rescoring is a great tool because you can boost your score 15, 20 or 30 points relatively easily. How do you do this? Take advantage of my Credit Tips, and after doing so, have your credit score recalculated.
Turning in the HUD-1 statement at the last minute
I recently asked a title agent, "What is the biggest mistake that mortgage brokers make when it comes to closings." The title agent didn't even have to think about it. He shot back the answer, complaining about how most mortgage brokers turn in the HUD-1 statement so late that it makes it difficult to close on time.
The HUD-1 settlement statement is a form that lists all of the incoming and outgoing money in a real estate transaction. The statement includes real estate commissions, points, the seller's net proceeds, the buyer's net payment at closing, escrow deposits for taxes and much, much more. The form is called a HUD-1 settlement statement because the form is printed by the Department of Housing and Urban Development (HUD). It is also known as the closing statement or the settlement sheet.
Irresponsible mortgage brokers fail to turn in the HUD-1 statement in a timely manner, often jeopardizing the closing. The closing agent has to have time to receive the document and prepare the closing. Often there isn't enough time to send a copy of the closing documents to the buyer for review. I find it ironic that the person responsible for handling the financing (the mortgage broker) is most often the person who causes problems at the time of closing. Unfortunately, a lot of mortgage brokers simply aren't on top of things.
Mortgage documents in dumpsters
How would you feel if you found out that your personal information (including Social Security number, income, etc.) was dropped in a dumpster by an unscrupulous mortgage broker? Unfortunately, it happens—and probably more frequently than any of us know.
Scam artists routinely pillage dumpsters to retrieve private data usable for identity theft. If I were a thief, I might think of looking in the dumpsters behind mortgage brokerages. A TV reporter in Indianapolis had the same idea and decided to do some good, old-fashioned investigative reporting. Over three days, this reporter peaked into dumpsters behind mortgage brokerages and title companies. He looked in 40 dumpsters, and found sensitive personal information in nearly half—18 to be exact.
The loan file compiled by a mortgage broker is a bevy of personal information. It contains Social Security numbers, addresses, account data—basically, everything.
Mortgage companies are beginning to receive fines for dumping files in the trash or "improperly disposing of mortgage documents." A newspaper reporter in Honolulu happened across 39 illegally dumped boxes of mortgage files as he was dropping off documents at a recycling center. A fine of $10,000 was imposed, but what happens when no one gets caught? Either the files make it safely to a landfill, or an identity thief hits the mother lode.
The mortgage industry has experienced a meltdown recently, courtesy of the popped housing bubble. That means that more mortgage brokers have gone out of business recently than ever before. It's not just the small companies who are going out of business—medium and large firms are going under too. When companies go out of business, they often chuck files in the dumpster rather than paying to have the files shredded.
If having your sensitive personal and financial information tossed in a dumpster sounds frightening, step carefully when choosing a mortgage broker. Fortunately, most mortgage brokers are professionals who will handle your documents in a secure manner. Beware of lowball rate quoting mortgage brokers, though. They hook you with a low rate and then pull the old bait and switch later on—and you wind up paying a higher rate at the closing table. Mortgage brokers who survive on these types of unscrupulous practices are also likely to toss your personal information in the dumpster when it is no longer of use to them.