Mortgage ‘Rip-Off’

Ms. Barbara Hall’s allegation that “America’s home buyers are getting ripped off,” in the Your Mortgage column (Jan. 20), deserved a more thorough response than the somewhat glib assessment provided by Prof. Jack Barcal.

While Barcal was correct in saying that lenders must spend a great deal of time on loan documentation and paper work, the public needs to understand that this also applies to loan applications declined by lenders and canceled by the applicants. Lenders do not profit from canceled and declined applications. Too, complying with the multitude of state and federal lending regulations is neither simple nor inexpensive.

Barcal’s response ignored two critical facts of mortgage lending. First, lenders too borrow the funds they loan: They pay loan fees themselves, in the form of points and/or interest.

Second, no mention was made of the secondary market, where lenders sell loans to investors such as the Federal National Mortgage Assn. and the Federal Home Loan Mortgage Corp. The money received from the sale of one loan is used to make another home loan. However, a $175,000 loan is not sold for $175,000. It is sold at a discount, and the lender does not receive the entire loan amount back from the sale. Points are a way for the lender to recoup some of these lost funds.

Lenders charge points so that they can stay in business and continue to loan money to those who need it. Consumers need to comparison shop between lenders and create market pressure to prevent America’s home buyers from being “ripped off.”

KYLE A. ROLL

Orange