Are You Getting Screwed By Your Lender?
Are you getting screwed by your lender? If you have a feeling your lender is screwing you when it comes to your monthly mortgage payments, don't shrug it off. You might be right.
David I. Ginsburg, founder of Loantech, the oldest mortgage audit company in the country, says his company still finds a lot of mistakes during mortgage audits for clients and people are often overpaying on their mortgages.
"In the late eighties, mid nineties, we were finding mistakes about a third of the time," Ginsburg says, "today, we still see around 15 to 20 percent of errors for adjustable rate mortgages (ARMs), fixed-rate mortgages and prepayments."
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The most mistakes, he says, are found with cash sitting in escrow accounts (also known as impound accounts on the West coast).
Escrow accounts typically hold the borrowers real estate property tax payments and homeowners insurance premiums. Lenders are allowed to hold up to a year's worth of payments plus two months, but no more. Ginsburg says his company routinely finds that the borrower pays too much and/or the lender holds too much in the reserve account.
"We find overcharges 40 to 50 percent of the time in one or both of those areas," Ginsburg says.
Mistakes Your Lender Might Be Making
Ginsburg says lenders typically make mistakes in three distinct errors:- Using the wrong index value. In terms of ARMs the index value can be incorrect if it's off by one day. Your lender might not have looked back far enough to determine the correct rate.
- Adding the wrong margin. The margin is the profit your lender packs onto your interest rate. The margin (of profit) might be 2 percent or 5 percent. But typically, if a mistake has been made it's so small you might not even notice - but your pocketbook will. The difference between 2.75 and 2.65 could cost you a fortune over the life of the loan, and your lender might not event realize this mistake has been made.
- Human error. From incorrect conversions of rates to accidentally inputting a wrong number, Ginsburg says human error occurs pretty often and results in systemic mistakes.
"It's basically impossible for a homeowner to figure out if they're paying the right amount on their own," Ginsburg says, "It's an incredibly complicated process and I wouldn't wish it on my worst enemy."
One thing you can do is look at your loan docs to figure out if you're being charged the right amount and the right margin on your loan. I once caught a mistake that was just a quarter of a percentage higher than what we were supposed to get. It was a $200 per year mistake, but that would have cost me $6,000 over 30 years!
Still think you might be able to figure it all out on your own? Loantech completed an audit on the mortgage of Former Secretary of the Treasury Lloyd Bentsen (the Timothy Geitner of the '90s). If he couldn't figure it out, you probably won't be able to either.
Loantech's two most popular mortgage audits are the ArmCheck and the Forensic Mortgage Audit.
- ArmCheck Mortgage Audit Report works for fixed-rate or adjustable-rate loans. This type of audit determines whether the lender has calculated rates, payment and loan balance correctly. If you think you're being overcharged this is the type of audit you're looking for.
- Forensic Mortgage Audit or a "Custom Audit" looks for violations of federal laws on the day of settlement with your lender. This type of audit is very popular right now and is used by underwater homeowners and those homeowners in risk of foreclosure. They use this type of audit hoping to gain some leverage for when they're negotiating with lenders to restructure or refinance their loan.
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Ilyce R. Glink is the author of several books, including 100 Questions Every First-Time Home Buyer Should Ask and Buy, Close, Move In!. She blogs about money and real estate at ThinkGlink.com and The Equifax Personal Finance Blog, and is Chief Content Strategist at RealtyJoin.com, a community for real estate investors.
