The Mortgage Expert Who Almost Couldn’t Get a House

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mortgage photoIn January of 2009, as the housing market collapsed, I took a job blogging for a law firm that specializes in predatory lending and wrongful foreclosure lawsuits.

I read case after case about borrowers who signed documents for loans that came with interest rates and other costs that were far higher than what they believed they were getting. Even when the correct documents were provided, borrowers had trouble understanding them—especially when lenders rushed them through closing.

When those loans ended up in court, many judges had no sympathy for the borrowers because they couldn’t see the power imbalance between the lender and the borrower. Unlike with business contracts, the vast majority of mortgage borrowers don’t have attorneys, aren’t qualified to understand the contract and have no opportunity to negotiate changes. In my opinion, too many courts dismiss these factors, saying that borrowers are legal adults who aren’t under duress, so they knew—or should have known—what they were signing.

Public opinion is even harsher. No matter how clearly an article lays out the bank’s role in a foreclosure, online commenters tend to blame the borrower’s lack of “personal responsibility.” Looking back, I see that I was also guilty of thinking that the key to avoiding predatory lending is a matter of education and careful reading.

Last fall, I realized just how wrong that thinking was when my husband and I decided that we were ready to buy a home.

I felt confident going in: I was plugged into the legal world, understood typical predatory lending and had plenty of lawyer contacts who could help. But, by the end, I was convinced that not even a well-informed layperson like me has a good chance of understanding loan documents—and the system needs serious reform.

Why You Really Can’t Shop Around

When we were looking to buy, it was a seller’s market in our area. In this climate, buyers’ chances substantially improve if they first get “pre-approved” for a mortgage by a lender before they make an offer because the seller knows that the deal won’t fall apart over lack of funding.

To get pre-approved, the lender asks for documentation on all of your assets and debts, and pulls your credit score. It’s not real loan underwriting—that comes later, which I’ll explain below. But, in a seller’s market, your real estate agent will probably pressure you to get pre-approved long before you’re ready to make an offer.

RELATED: I Want to Monitor and Improve My Credit Score Checklist

This process—and the accompanying time pressures—makes it hard to use a lender other than the one who pre-approves you. Plus, lenders expressly warn that the pre-approval may not look like your final loan—when your offer is accepted, the lender checks your financial situation again to make sure that it hasn’t changed.

Unfortunately, this means that there’s risk in getting more than one lender’s opinion because, depending on the formula that the credit-requesting company uses, your credit rating could actually be harmed if several lenders pull your credit score over a “shopping period” that exceeds 14 to 45 days.

  • Bankwatcher

    Great article with good points. We all want to think that we are doing honest business with lenders but it just isn’t so in some cases. I have had to report one refi lender to the feds when they purposly delayed approval which cause my rate lock to expire. i was fortunate to be contacted by the escrow person (who was steaming mad) who let me know that the lender was puposely trying to get out of the loan. Fortunately the threat of an investigation scared them enough to messeger the papers with the loan amount and the agreed upon amount within 24 hours.

    I also had a loan officer at B of A try to scam me into paying her a commision for simply raising the available credit on my HELOC.

    Now my MIL is being discriminated against when she requested a HELOC with US Bank so we filed a complaint with the Feds so we shall see what happens!

  • cheryl

    You make me scared to even try to buy a house, even though I’m a mature, educated native speaker with good credit and good income.

  • Catherine

    I’m so glad to have read this article. I am no longer totally naive. I was. Thank you! I would like to see more educational articles like this one on Learnvest.

  • aokimoonchild

    The US mortgage process is extremely confusing. I purchased a house in 2011 (equity sale) with a conventional fixed-rate mortgage, no points, no weird terms, no bad marks on my credit – should have been straightforward right? It wasn’t. The closing experience was horrible; I kept asking questions so the loan officer left the bank’s conference room and the notary got mad at me, telling me to sign and just read the documents later during the rescission period. Makes no sense – I’d much rather have my questions answered immediately than get a list going after the fact, seems disrespectful to me… Plus, I got hit with a huge closing bill that was not explained to me beforehand; luckily I had the cash in my savings account to pay for it. Like the author, I still hope that I understood everything in the contract and my trust in the lender was greatly diminished after getting rushed through the closing. After all that drama I definitely won’t be in the market for another house anytime soon; I’m staying put!

  • Paula

    Does anybody have any different experience getting a home loan through a credit union? Do these issues still apply?