It is sad, but it has finally happened, a potential client was referred to me who has clearly been
deceived and mistreated by a mortgage professional whose job was supposed to provide them with the best product to fit their needs. Unfortunately, we read about this type of thing in the newspapers but sometimes we get to face them in person.
This particular client was given a
Negative Amortization Loan or an Option ARM Loan but the details and the pitfalls were not fully explained to them. Option ARM was not designed for a regular salaried worker like this prospective client; it was designed more for business owners or commissioned employee like Realtors who may come into large sums of money or may have stretches with no income.
Consumers sometime have no idea what they are being driven to, so one safeguard would be to ask the Realtor to see if this type of loan would be suitable for them. In this case, that avenue was unavailable as the Realtor was the person also doing the loan and pushing it. This Realtor was making money off this client on the loan side as well as the sales side; there was no reason to sell them a product and not explain about the possibility the mortgage would increase rather than decrease with time: their income would not increase drastically over time.
The only explanation for this in my opinion is pure greed: typically, these loans pay out larger fees to loan brokers than other types of loan products out there.
What transpired was they paid the minimum payment option, so they were not even paying enough to cover the interest. Over the course of two years,
their mortgage balance was not decreasing, but increasing to the point where they may be unable to make the inflated monthly payments. Now the prospective client is faced with a dilemma, not necessarily of their choosing: try to
re-finance or
sell their current home and buy something that is more affordable and hopefully will appreciate in value to cover any losses they may have suffered thus far. (Unfortunately they bought in an area that has not appreciated in value over two years so not only do they owe more, their property is worth about the same).
Consumers, please be careful out there. As we have learned over and over again, there are unscrupulous people out there who are not in this wonderful business for the long run. They are willing to earn money quickly at the risk of their clients and do not abide by their
fiduciary duties to their clients. Ask questions until you understand. Don’t be afraid or embarrassed to ask questions, we are dealing with highly technical financial concepts that many in the industry sometimes don’t understand. At the end of the day, you have to know what you are getting yourself into.
Steve Mun, Silicon Valley Realtor
www.stevemun.com
