If you're about to plunge into this fall's low-rate, high-competition home loan market, mortgage consultant Allen L. Hardester, Jr. has a few modest requests:
Don't play the multiple-application shell-game. It will almost certainly cost you money. It drives lenders batty. And it could get you into legal trouble _ especially if you're intending to invoke what you believe are your federally guaranteed three-day "rescission" rights.
Never underestimate the computer power or thoroughness of credit bureaus. Your most intimate financial details are available _ in full color on screen or printed out in minutes _ to any lender with your Social Security number for about $1.40 a peek. Among the details on the screen: the names and dates of all recent credit-check inquirers. That means all other lenders you've applied to or been turned down by.
If you truly want to lock in today's favorable rates, then do so with a bona fide, formal rate-lock program offered by a reputable lender _ even if there's a charge for the privilege. Consumers who shop by phone for verbal rate locks, and then assume they're protected against increases when they apply, often learn the hard way: They signed up for a floating commitment, not a true rate lock.
Hardester, based in Columbia, Md., works with mortgage banking and brokerage firms. He's an expert on what the industry calls "the new games borrowers play" _ some verging on scams _ as they aggressively shop for the lowest rates and fees in the red-hot 1992 market.
Tops on Hardester's list of consumer no-no's: The currently popular shop-till-you-drop philosophy that leads home owners and buyers to apply for loans simultaneously at more than one lending institution.
"It's a nightmare" for the industry, said Hardester, because it forces lenders to take unpleasant counter-measures, like non-refundable application fees.
One East Coast-based lender recently took in an application from a would-be borrower who already had active applications pending at five other competing lenders.
"Her thought was that she'd be in line to get the best deal," said Hardester, by having irons in the fire all over town. She'd then cancel out of everything but the best.
What she didn't understand, he said, was that her applications all popped up on her open credit file almost as quickly as she made them. Every major consumer credit bureau keeps a record of when and where the borrower applies, traceable when each lender calls in to check credit. The "inquiry" record goes automatically into the consumer's file.
"So that's a good way to get a mortgage from nobody at all," said Hardester. "I mean, who wants to be stuck with processing loans where the odds are against (the borrower) going to closing?"
The shop-till-you-drop, multiple-application game has led inevitably to higher commitment and rate-lock fees this year in many markets. Most of the fees are non-refundable. They range from .25 percent of the loan amount to as high as 1 percent.
Consumers who assume they can beat these countermeasure fees by going to closing and then "rescinding" their contract _ canceling the deal within three business days _ are also often mistaken.
The federal truth-in-lending statute permits no three-day rescissions on applications for insert mortgage loans (for home purchases or new construction), which means that if you expect to get back your non-refundable fees, you're wrong. You may instead get a lawsuit _ or a loan you didn't want.
A far better strategy than multiple-application shell games, say Hardester and other mortgage experts, is to insist on written rate-lock programs from the lender who ranks first on your list following your shopping.
Major mortgage firms in virtually all markets now offer innovative locks that guarantee your rate for a specific period of time _ like 45 to 60 days _ but also guarantee to close you at any lower rate prevailing if you close within the lock period.
1992, Washington Post Writers Group