Two examples of con games played against borrowers

Nation's Housing

October 19, 2003|By KENNETH HARNEY

In a trillion-dollar mortgage refi market, they are hardly the most egregious examples of what can go wrong for homeowners. But each case sheds light on the con games that are being played against sophisticated borrowers and the financially naive.

Read them and you'll be better equipped the next time you apply for a new mortgage:

Daniel Wiercinski is a pharmacist on New York's Long Island, a longtime homeowner, and a regular reader of the financial and real estate pages, who generally tries to keep up with what's happening in the business world.

He recently refinanced his $165,000, 3-year-old mortgage. He timed the market well and got a good rate - 5 1/4 percent for 30 years fixed. As part of the deal, his mortgage broker quoted him a fee of 1 1/2 points (1.5 percent of the mortgage), with no application charges. The broker also agreed to allow Wiercinski and his wife, Mary, to retain their low-rate $5,800 home-equity credit line with another lender. The equity credit line would simply be "subordinated" to the new first mortgage on the county real estate records - a common procedure.

When the Wiercinskis checked their refi closing documents, they discovered to their horror:

They were being asked to pay not once but twice for their appraisal, at $300 a pop.

There was suddenly an application fee of $695 in the transaction.

Their home-equity credit line never was subordinated, thereby triggering an $880 early payoff penalty and lumping another $5,800 onto the new first mortgage they were obtaining. That breach of promise, in turn, added to the broker's fees by increasing the loan amount.

The settlement lawyer's fees were not the $650 listed on the federal good faith estimates disclosure but $1,175, nearly double.

The lender's title insurance policy was $1,066, hardly the discount "reissue rate" appropriate for a refinancing of a mortgage for which full-cost title searches and insurance coverage had been paid barely three years earlier.

Unexplained fees with suspiciously rounded-off numbers were sprinkled throughout the settlement sheet - two "courier fees," one for $100 and the other for $50, a $300 "pick up fee," a $75 "clearance fee," a $100 "wire fee," plus a previously undisclosed $500 "underwriting" fee.

In the end, the Wiercinskis found themselves sitting with nearly $13,000 in settlement costs on a loan amount thousands of dollars higher than they had wanted. Wiercinski said in a telephone interview that he laid his "GFE [good faith estimates] up against my HUD-1 [final settlement statement] and found a lot of this stuff."

Wiercinski threatened to cancel the deal and managed to get back about $450 in fees, but ultimately "we just paid most of the charges because we really wanted that 5 1/4 percent 30-year rate, and we figured rates were heading up."

He is "not sure that we have any legal [recourse]," he observed in an e-mail describing his situation. "But maybe other people could learn from our experience."

What's to learn here?

First, "good faith estimates" under federal law don't have to be backed with good intentions or even accurate estimates. The federal law is toothless and virtually unenforceable.

But extreme deviations from up-front estimates may be able to be challenged under state "deceptive trade practice" statutes. Second, always demand to see the HUD-1 settlement charges at least a day in advance of the scheduled closing date. That way you'll have time to dispute and negotiate 11th-hour surprise fees and maybe blow up the closing if you're not satisfied.

The second case is a much briefer story: Jean McConnell, a 72-year-old condominium owner in Pinellas County, Fla., recently refinanced her $26,000 mortgage. The broker quoted her an $870 fee to obtain the new loan (3.4 points). The same charge appeared on McConnell's good faith estimates and settlement sheet, and she paid it at closing. The broker was "a very nice young man," McConnell recalls. "I thought that we had established a very good relationship, and I trusted him completely."

But 10 days after settlement, the broker came to McConnell's home and said he had "miscalculated" his fees for her transaction. He presented no documentary evidence or rate sheets but asked for $975 more.

McConnell, who lives on a fixed monthly income less than that amount, said she "felt sorry for the young man." She wrote him a check for $975, which was immediately cashed. Now she suspects he simply bilked her, and she is exploring legal action or complaints to state licensing and regulatory agencies.

The moral here: The word "closing" means precisely that. It's the end of the transaction. You don't pay the broker another dime after the closing, no matter how nice he or she may be. Ever.

Ken Harney's e-mail address is kharney@winstarmail.com.

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