The Truth About Lenders and Loans

Every home buyer, refinancing homeowner and realty agent should read “How to Save Thousands of Dollars on Your Home Mortgage” because it reveals some sound insider secrets about mortgage lenders.

Most home-loan borrowers don’t get the best mortgage for their situations, according to author Randy Johnson, who has 22 years’ experience as a mortgage broker. He says home loans are “sold” to borrowers, most of whom don’t know what they are buying.

Only serious borrowers will study this book. The format is dull, but the content may be extremely profitable. Writing from the perspective of a mortgage broker who represents borrower clients, not lenders, the author explains insider tricks some lenders use.

“Simply put, it is easier for lenders to deal with people who are not very knowledgeable; they can make more money from such people,” Johnson writes.

The book’s theme is that most people get the wrong loan or pay too much for their loan. Johnson then explains the major lender considerations that go into creating home mortgage offerings. He emphasizes the importance of doing business with a mortgage lender who offers many different loan plans that can meet the needs of buyers and owners with different loan requirements.

If you expect this well-organized, authoritative book to tell you which home loan is best for your personal situation, you’ll be disappointed. That decision is up to you.

For a book that is supposed to be on the borrower’s side, this one isn’t harsh enough on the home-loan lenders who take advantage of borrowers. Perhaps the author isn’t aware of all the tricks some lenders play on borrowers.

For example, Johnson’s explanation of lender garbage or junk fees is incomplete. He should have listed the most egregious fees some lenders try to impose on borrowers, such as warehousing fees, preparation fees, documentation fees, underwriting fees and even miscellaneous fees (when the lender runs out of names).

This book is complete in its explanation of what borrowers should expect during their home-loan application process, but Johnson fails to mention the upfront loan application fees some lenders charge, whereas other lenders charge no fees. He also neglects to clearly state whether or not borrowers should pay any upfront loan fee points.

In the chapter about credit, the author fails to mention how prospective borrowers can obtain their credit report and FICO, or Fair, Isaac & Co., credit score, which most mortgage lenders use to evaluate applicants.

Especially valuable is the chapter titled “How Lenders Can Cheat Their Customers.” In it, Johnson explains how some lenders, especially mortgage brokers, profit at their borrower’s expense, such as with yield-spread premiums and loan servicing fees. Most home-loan borrowers have no clue how these profit centers work for lenders. The author warns that mortgage regulators are of no help to borrowers who get ripped off.

As for using the Internet to obtain a home loan, the author isn’t enthusiastic. But the book concludes with suggestions on how to improve mortgage lending, many of which he made in the 1997 edition of the book.