WHY DON'T BORROWERS UNDERSTAND LOAN TERMS?
As a loan originator who has worked in the industry for nearly 14 years I simply cannot understand why a borrower would call me and say they have been quoted a 4% interest rate on a thirty year mortgage and want to know if that is a good deal.
Heck yeah! That rate, with zero origination, zero points, no built in buydown using the equity, low closing costs, fixed for thirty years, no prepay penalty,
Trust me, I'm glad to get the call but it is frustrating that consumers are so easily misled! Once that carrot is dangled, they have such a hard time letting go of it. It must be so!
MORTGAGE LOANS ARE NOT ALL ABOUT INTEREST RATE! RATE IS ONLY ONE FACTOR!
This day and age almost everyone has a computer and they can simply click on several websites and look at the rates being quoted. Having followed that process, then it should be clear to them that if the rate they are quoted is well below what is published they are misinformed. Clearly, they don't understand the loan terms being quoted.
In this particular scenario I could tell the borrower that either (a) he is not getting a fixed thirty year mortgage or (b) he is paying a lot to get that rate. Is is possible that there are still loan originators trying to lock someone into a variable rate note by telling them it amortizes over thirty years, just hoping they borrower will not read the paperwork where it says the rate can go up?
What good does it do a sales person to quote a ridiculous rate without explaining how they got there? At a minimum there is the risk the borrower will figure it out and explaining at the closing table is a miserable option.
The consumer when buying any product, whether a home mortgage or an appliance should do their homework. By not doing so and then blaming the salesperson for selling them a product that is not what they wanted only to say they were duped is laziness. I'm not saying they were not purposely duped, I'm saying they have some responsibility.
There is a new sheriff in town - the Consumer Finance Protection Agency - they are gunning for anyone trying to misguide the consumer.
This new agency cannot ensure that every transaction is favorable to the borrower, or that a borrower has the best deal available. It can set standards, it can create more paperwork, but it cannot force the borrower to do due diligence. At the end of the day the borrower must take responsibility for their decision.
For all the expense of this new agency, I fear it will not be the solution to the problem of borrowers not understanding the loan terms. As long as there are sales professions - in any field - the borrower will be at a disadvantage. A buyer can be sold a lemon of a car, house, mortgage, vacuum, etc., the list goes on and on. Whatever the purchase the buyer must educate themselves before embarking on the journey.
