The Ultimate Consumer Horror Story

Every so often, I get a call out of the blue that starts something like this “Hello, I’m shopping for a mortgage. Just tell me your lowest rate.”

I try to do the ethical thing, finding out on what sort of loan and all of the ancillary information that would actually make this useful information.

“No. Just tell me your lowest rate.”

Every so often, I’ll admit, I’m seriously tempted to quote them the lowest rate available on a month-to-month loan where the teaser rate has to be purchased with three and a half points – a loan such that I’d consider going homeless if that was all that was available.

Then I sigh inwardly and try to explain that unless I know the answers to a few question about the kind of loan that would be best for him, that’s like being told the ultimate answer to the ultimate question about life, the universe, and everything is 42, without being told what base it’s in, much less what the ultimate question is, so that that he, the consumer, has some way of knowing whether the answer may be appropriate.

“If you won’t help me, I’m hanging up. Click

And then one of my neighboring co-workers wants to know who that was, and this is what I tell them:

“Some Poor Guy who’s terrified of salespeople setting himself up to get rooked for the five millionth time.”

Another example: Quite some time ago, I was dropping some papers off with a prospective client, a salesman in a different industry. Somebody came up to him and asked, “How much for an Acme Widget Master 1234?”

“$X” was the reply. The guy walked off immediately. I asked my prospect, “Aren’t you going to try and stop him? And I thought an Acme Widget Master 1234A56 cost $X+Y. They on sale?”

“Dan, I know you’re new to the sales game, so I’ll give you some help. That Guy is not my target market. He thinks he knows everything he needs to, and thinks he knows how to get the best price. He may actually know what he’s doing and not need my expertise. But he wasn’t going to give me the opportunity to explain that this was the price for the base model Widget Master 1234, and the Widget 789 with a couple options for about the same price is probably going to make him happier. You’re not my target market, either – you know enough about these to be able to figure your needs pretty accurately. You came in and told me what characteristics you needed it to possess, which is why I told you about the A56 and quoted you that price. I was grateful gave me a chance at your business, but I didn’t expect to be able to beat Major Catalog Company. All they’re selling is the item. I’m selling not only the item, but also my knowledge and immediate availability, and help setting it up and technical support. Sure, That Guy is probably going to end up with something that frustrates the hell out of him at a price higher than he thought he’d pay, but he’s terrified of me. He’s not going to give me the opportunity to talk, and until that changes I refuse to waste my time trying.”

One final example, even earlier: When my wife and I were newlyweds, we needed a household Major Item because our previous Major Item had failed. We went to several places shopping, among which were stores A and B.

Salesman at A: “You say you need type X? Oh, those are terrible, but if you spend $1000 modifying your home, you’ll really love this product. Energy efficient, does a great job, and it’s cheaper than the competition. No we don’t have any of type X, but like I said, you don’t really want those. They are awful.”

Salesman at B: “You say you need type X? I’m sorry, but we don’t carry any of those. I’m sorry but there’s not enough demand, although I understand your situation. Tell me, have you found any anywhere? At C and also at D? What did you think of the alternatives? Thank you for helping me.”

Several years later, we had need of a Different Major Item. I had kept the B salesman’s card, and we went back and ended up buying from him, although we did shop elsewhere. We tried to go back again for Another Major Item recently, but he had moved on and we were disappointed, but talked with the salesperson who was there, and although we ended up buying elsewhere that time, I could see a cultural influence at work and we will continue to make a point of shopping there.

We haven’t gone back to store A since the first conversation.

My point is this: Had I been Mr. Some Poor Guy, or That Guy, I would have bought from the A salesman – it was the cheapest product. Then another A salesman. And yet another A salesman. And been unsatisfied and unhappy, and generally angry at the need to spend a lot of extra money and frustration dealing with it each time – why didn’t they tell him? Why weren’t they simply honest? It must be because all sales scum are dishonest crooks!

Unfortunately, the real problem is not so much that the A salesman was a crook (he was a misinformed high pressure employing menace to society, but he did tell me I’d have to spend the $1000 extra), but that the strategy the customer employed is counter-productive, and does pretty much guarantee you’re going to get conned – he wouldn’t give the A salesman a chance to tell him about the $1000. I encourage keeping your guard up, but a request for context is an attempt to find you a product that meets your needs without costing you more than necessary. Wait until somebody actually tries to sucker punch you before you go for the right hook to the jaw followed by the one-two to the kidneys. Because the A salesmen (and women) play this game every day, and they’re incredibly good at it, and it’s going to be one of them that counters with a karate blow to the throat that scores a knockout (and the sale). Messrs. Some Poor Guy and That Guy are the sort who keeps the A salesmen in Lamborghinis.

The B salesman is good at a different kind of game. Typically make less money, especially at first, and so it is not the model taught by the How To Succeed in Sales Super School, and he’s not the Superstar Sales Hotshot that corporate sales managers seek out to help increase their next quarterly bonus for staff productivity, but he’s out there if you look, and a lot of companies from the corner shop up to the big corporations understand his value to their bottom line. Where A salesman is always hard at work looking for the next score (and is always a drain on their advertising budget, in whatever form), B salesman gets to the point where he’s handling all he can with what comes to him, even generating spillover to other members of the staff. Even when he gets to the point where he’s constantly saturated in business, he doesn’t get stressed, he doesn’t burn out, and he’s not a source of problems.

Now, how would you like to find B salesmen reliably?

First, you’re going to have to look hard. He’s probably not going to be the first one you talk to. You’re going to have to do some serious shopping. He’s probably busy somewhere talking to a repeat client, not one of the vultures who are waiting around the sales floor to swoop down on you and grasp you in their greedy little talons. Second, don’t expect a saint. Yes, he’ll ask for the order, he may even use some pressure to try to get it. If he’s not especially busy now, he’s cultivating habits for later, and frankly, nobody wants to spend more time selling to a given client than is really necessary. They want to make efficient use of their time, and use the extra to either make more money with other sales, or just have fun. They are there to Make Money, not because they think standing around the sale floor (or whatever they do to generate clients) is The Most Fun They’ve Had With Their Pants On. They may like or even love their clients (I do the vast majority of mine), but if they weren’t Making Money they wouldn’t be there. The reality is that if they don’t sell enough to make a living, they’re not there anymore. There is a point, in all transactions, and with all customers, that it just is not worth dealing with them anymore. The sales person has things he’d rather be doing, whether it is dealing with a repeat customer’s much larger transaction, spending time with the family, or just watching the game on TV at home. This point comes a lot sooner for a waffle iron than a house or a home loan, but there is a point where even the most desperate real estate agent stops initiating, stops returning, and finally stops accepting phone calls.

There is a cultural difference between the A salesman and the B salesman – they usually don’t work in the same place. I’ve never seen a place that didn’t have a strong preponderance of one or the other. There will usually be at least one A salesman on every staff, no matter how B culture the place is. But he’ll find another job at an A culture establishment before too long. There are places that are so A culture that the B salesman just can’t stand going to work there, so there typically aren’t any B salesmen.

How to determine if someone is an A salesman or a B salesman

First off, a B salesman will always ask what you need it for, whatever the item. He may spend quite a bit of time asking about all the stuff you need, what your tradeoffs are, and all sorts of other information. This is a good sign. He’s probably not looking for weaponry to force you to accept the El Cheapo Sterno can of fuel for the Bargain Price of only $9999.99, A Fraction Of The Cost (a very large fraction of 99 cents, but still a fraction). I’ve worked (briefly) with people who can sell ice to Eskimos at exorbitant prices, and if he’s that sort, he probably doesn’t need the information. Those sales people go straight for the kill. The more time he spends asking you about what you need or what you want or what your tradeoffs are, the happier you should be. The larger and more important the transaction, the more time he should spend asking you this stuff.

When he makes a recommendation or starts telling you about a product, he’ll remember enough of what you told him to paraphrase it back to you, “Now, as I remember, you were telling me you were looking for something that A. Well, this item does A. And as I recall, you told me you were looking for B but had a budget of C. Well, I’m afraid all of out widgets with B cost more than C, but this one appears to meet all of your other needs. If you really need B, here’s a widget that does B also, although it costs X more than C,” or “I’m afraid we don’t have any that do D, but I’d like to know if you’ve found any place that does?” Once he’s shown it to you, he’ll ask, “So does this do everything you’re looking for, or does it fall short?” as well as questions like “So if you had this, you think you’d be happy, right?”

B salesmen will answer your questions clearly, directly, and forthrightly, and ask if this information answered the questions. He will be happy to give amplifications and clarifications, not keep repeating the same phrases.

Every sales person knows – because the sales manager makes sure he knows – that if the client leaves the premises, gets off the phone, whatever, a sale becomes much less likely. Every sales program I’ve ever heard of goes over and over and over this, ad nauseum. So it’s not like it’s any great secret. The B salesman knows it as well as the A. And they’ll apply some pressure to get the sale now, whether it’s considerable (B salesman) or an avalanche (A salesman). The B salesman won’t trash the opposing products, though – he’ll simply try to tell you where his is better, why it meets your needs, and why you should Buy Now.

It is always a clue that you’re dealing with an A salesman if he finally tells you, in desperation as a last resort, “If you find a better price, come back and I’ll beat it.” First off, the fact that there’s suddenly room on the price means it may be overpriced in the first place. Second, the reason the A salesman says that is that he really doesn’t know – or care – what you want, and he’s figuring to replace it (in most cases) What He Showed You with Something Cheaper That Seems About The Same when you come back. Finally, if a B salesman doesn’t quote you a Pretty Damned Good Deal in the first place so he can Get This Transaction Onto The Books and go home, he knows he’s going to lose customers, which are then not going to come back to him because he treated them right, and not going to tell others about him because he treated them right.

Getting back to the first shopping trip my new wife and I made together, in search of Major Item, along about the ninth or tenth store when we’d just bought what we needed, my wife said, “There is no in-between with you, is there?”

“Huh?” I replied brilliantly, having no clue what she was getting at. Remember, we were newlyweds at the time.

“These sales people. You’re either the nicest guy possible or the worst (expletive) I’ve ever met. It’s a side of you I haven’t seen.”

I was well aware that she had led a somewhat sheltered life until a few months before we met, and there are obligations that one has to educate your family in case you’re not around. “Let me guess. You’re talking about how I was joking and pleasant with B, C, and D, but cut A and G off cold, chewed E out, told F to get out of my face, and was hard on H but then friendly, and friendly again while asking pointed questions when we came back to buy?”


“Beloved, B, C, and D were doing the best to help us find what we needed. They asked us intelligent questions about what we needed before showing us an item. They answered the questions I asked instead of trying to distract my attention, didn’t push more than they should have, and in general were behaving like our needs were what was important. They knew you were there and were respectful to you, but they realized I was the one who was going to have to be sold, so I was the most important person in the room. Not them.

“H was a miscommunication that got cleared up. And you should ask questions again to make certain you understand just before you buy. She knew that she was likely to get the sale once we came back, and even more likely when she showed us she knew what she was doing. The questions were to make certain there were no more miscommunications – she knows what she’s selling better than I do. It would be very easy for any kind of a sales person to misdirect a question while we’re in the midst of the hunt. When I’m ready to buy, I’m going to make certain I understand everything I need to know about this Major Item, so I’m asking the questions in a different way to make misdirection or pat phrases obvious. H knew this, and gave me straight answers without evasions. And her product met our needs. So that’s where I wanted to buy. As to why I was mean to the others, you know I’m always willing to be an (expletive) in a good cause, right?” She nodded.

“Well, A wanted to make the sale he wanted to make. Our needs weren’t important. E thought she could get away with a lie, and I called her on it. I know she’s going to make other sales, but not tonight. Penalty Box. F tried to use you as leverage against me. This would be acceptable though not welcome if I thought he was trying to meet our needs, but he wasn’t. I told him we had to have X and his item didn’t. And G didn’t have a clue about X. The appropriate thing would have been to get help or tell me he didn’t know but he’d find out and then go find out. He was wasting our time. And now we’ve got our Major Item, and we’re going to go home and be happy with it and not waste any more time on this whole issue.”

And we did. She still lets me do the most of the major shopping. But if a meteor hit me, she’d be a much savvier customer now than she was before I explained it. She’s not afraid to deal with sales people. Which puts an end, in all senses of the term, to the Ultimate Consumer Horror Story.

Caveat Emptor.

Why “Searchlight Crusade”

I believe, and have for many years, that where a rule of law is operative, the most effective weapon to use upon those who are abusers of what sort or another is to shed light upon their doings. Indeed, I have long thought that this is the best indicator of the strength of the rule of law – that once sufficient light (publicity) shines upon a given subject, those whose responsibility it is to perform the relevant governmental tasks will attack the problems, as opposed to those performing the illumination.

Given this, my first thought was actually to use Flashlight Crusade as a working title (and indeed, have registered that domain as well). My wife suggested, after the well known pauper who spent his life looking for an honest man. However, given the number of cockroaches about, I don’t want something the image of something handheld, where the cockroaches go back to doing the same old thing as soon as the holder moves on. I want this stuff to stick around, and continue to illuminate the subjects covered so that said cockroaches have to start acting like responsible human beings if they have any desire to avoid being stomped. If they act like responsible, respectable human beings, they become responsible, respectable human beings. And unlike Diogenes, I happen to believe most humans are basically honest, likable folks. However, many professional fields (including my own) are set up such that people are trained in them by basically being told, “This is the way things are done,” and expected to conform because that is what is necessary. Given this as a reality, it is very difficult for an individual practitioner to stand up and say, “No. That is not the way to be treating people who put money in my pocket and food on my family’s table,” especially given that the mechanisms for changing these behaviors place one at a competitive disadvantage – in other words, if you try to be morally better than the competition, your business is likely to fail. And the motivations for continuing the prevalent (disreputable) practices and even enhancing them are large – these tend to be those who succeed wildly in the given fields. Quite simply, the existing practice is that individual practitioners (and group practitioners) “go along to get along”. They do things the way the industry has always done them, so that must be okay, and because if they don’t, they are not likely to succeed. Suffice it to say that my plan is to give them, as well as consumers, the ability to improve this situation.

I don’t believe my ability to shed light is unique, nor do I believe myself immune to making mistakes and inadvertently committing the errors I go on about. I am intentionally trying to set up the conditions of maximum transparency here, for myself as well as everyone else, so that people can call me on my errors as well. I’ll never improve if I don’t know I’ve fallen short. I happen to believe that appropriate accountability for everyone is a good thing. Most people have heard variations upon Oliver Cromwell’s famous “I beseech you, in the bowels of Christ, think it possible you may be mistaken.” One of my tenets of day-to-day life is to realize that Cromwell himself was failing his own challenge. So I try to conduct error checking on my own, but the point of all this is that if you have your own Searchlight, Flashlight, or even Lamp to wield, please let me know. I can’t be a crusade all by myself.

The Best Suggestion About Applying For A Mortgage

This is unfortunately, an obsolete article. Nobody can accommodate doing backup loans any longer. Any loan quote is worthless unless locked, and the penalties to mortgage personnel for failing to deliver pretty much every loan you lock have become too large. It’s here for historical purposes. Back when originally written (June 2005), it was a great strategy for making sure you got the loan somebody was talking about, but alas, changes in the market have made it obsolete. It is here for historical reasons only.

Original article begins here

For all the fact that I rant on about problems in out national mortgage market here in the United States, the problems are mostly on a retail level. Almost in their entirety, they have to deal with what happens when one consumer meets one provider, and I believe that they will vanish when the consumers are informed of the facts, and take the time to make rational, informed choices.

The fact is that for mortgage providers, there are strong incentives to lie to consumers. “Everybody else does it, too – how else am I going to compete?” Also, real closing costs seem high. Real closing costs are high enough that many states with so-called “predatory lending laws,” limiting the amount in total charges as a percentage of the mortgage, either have already repealed them or are considering repealing them so that their residents can get loans. I can talk to people about closing costs that have been significantly reduced by contracts I have with service providers, and they’ll say, “Costs seem high.” Well, yes they are expensive, but they’re real, and what I tell you about up front actually covers what my clients will be asked to pay. Just because we allow you to roll them into your mortgage, where you pay interest on them for the rest of your life, instead of the money coming out of your checking account doesn’t mean you somehow didn’t pay this money.

So We can take it as proven that there’s an incentive for loan officers to minimize costs of their loan in conversation with you. Many will tell you anything it takes to get you to sign up with them, do anything they can to force you to stay with them (signing fees or lock fees up front are common, and THE BIGGEST RED FLAG I KNOW, and requiring you to give them original documents is almost as common and almost as large). They will penalize you out of spite if you decide you don’t want their loan.

From almost the first moment a consumer talks to some mortgage providers, they are lied to. The fact is that as long as the rate that they quote you is available, the providers won’t be held responsible if you don’t get it. If you ask them what there rate is on a 30 year fixed rate mortgage without points and they reply with a the rate that’s available on a 30 year loan that’s fixed for one month at a time with five points, that’s actually legal. They can sign you up for the former, deliver the latter 30 days later, and with rare exceptions that they are adept at avoiding, not get in legal trouble. They can tell you all about a loan that’s based upon completely different qualifications than the ones you possess, in order to get you to sign up. And many loan officers, from the largest, “most reputable” banks on down to the smallest brokers working out of their home, make a habit of it. The examples I give above may be more extreme than usually happens, but it’s a matter of degree, not kind. Blatantly unethical is still blatantly unethical, whether they’re stealing multiple tens of thousands of dollars from you, or “just a few thousand between friends.” If you found out you were victimized by a Nigerian 419 scam, I’m sure you’d feel much better to find out that you were only taken for $3000, where it could have been $30,000, right? This is no different. No, let me take that back – it’s worse. If the loan provider were honest, your patronage would still have put a lot of money in their wallets, and they backstab you to get more?

The first thing to keep in mind is that all of the incentives are aligned for them to tell you ANYTHING in order to get you to sign up with them. The fact is, many people, once they sign the initial papers, consider themselves committed to that provider, and won’t switch no matter what. At the end of the process, many loan providers are adept at hiding the crucial things you should study carefully in amongst the sometimes dozens of pieces of trivial paper that you have to sign. A large portion of people victimized in this way never notice that the loan delivered had three points more than the loan they signed you up for. A few more only realize it weeks later when they get a statement loan balance is much higher than they thought, and it’s too late to do anything about it. And of those people who do notice that something is amiss when they’re actually signing the final documents, eight to nine out of ten will cave in and sign. They’re tired of the whole process, all they have to do to have it be over is sign right there on the dotted line. And if it’s a purchase, the consumers are under a deadline. It’s the thirty-ninth day of a thirty day escrow, and if they don’t sign the loan documents right now, they not only don’t get the house, they also lose their deposit and the extra money they’ve been paying to keep the escrow open while the loan officer got his (or her) stuff together and decided exactly how much in extra charges to stick them for. The leverage available to the consumer in such a situation is Zero. Zilch. Zip. Nada.

I’m going to make what seems like a heretical suggestion here. This is truly radical. The resistance in some quarters (particularly loan officers) to this suggestion is enormous. I can already hear howls of outrage already from loan officers and their bosses. Furthermore, I can hear millions of consumers griping about the paperwork involved already, and I haven’t even said it yet – except to fewer than a dozen clients who took this advice and are forever grateful to me.

Apply for a back-up loan.

It isn’t precisely a walk in the park to do the extra paperwork, I’ll admit. But it isn’t thirty years in purgatory either. There are issues to be aware of (most notable being the appraisal, about which more in another column), and extra charges to put up with from the appraiser, escrow and title companies. $100 to $200 if you handle it right, $500 or a little more if you don’t. But this is likely the most cost effective insurance policy a consumer can buy today, and I’m going to harp on it until something changes this fact

You see:

Every so often I encounter a client who I’m certain has been lied to, and believes every word of it. I know what rates really are available, and at what cost. And this person has been quoted something where, if it were true, that loan officer not only isn’t going to make money but is actually going to pay hundreds or thousands of dollars of their own money in order to get it for the client. Unless John or Jenny Consumer is a close relative or the loan officer literally owes them their life, it doesn’t take a genius to know that’s not going to happen. (Some of the worst taking advantage of someone that I’ve observed on the part of loan officers has been from Uncle Bob, the first cousin they grew up with, or even Sister Sue, but I digress). So every once in a while, I volunteer to act as a back up loan. They cooperate with me for the paperwork, and I will do the work, knowing full well that if their primary loan goes through as advertised, it’s all a waste of my time, effort, and money.

Every single time it’s been my loan that they ended up getting.

Furthermore, there have been other situations where I wasn’t 100 percent sure – the rate existed, and it was possible the loan officer might deliver something similar if they were willing to settle for a lot less compensation than most loan officers, and so I didn’t make the offer, and they came back to me weeks later with “Can you still do that loan you talked about?” (The answer to this is ALWAYS no. Rates at every bank vary daily, and often within a day – even the sub prime lenders that publish rate books good for months have adjustments that change daily. This is part of the importance of a lock. But usually I can do something similar, and sometimes better if the rates have gone down).

Most consumers do not realize that there is not necessarily any correlation at all between the loan you sign an application for and the loan that gets delivered with the approved documents ready for a notarized signature. It’s completely dependent upon the good will and good faith of that particular loan officer and the company they represent. Some are completely honest. Some are looking for extra bits and pieces of cash to pick up around the edges. And some will take the odd arm and leg from you if they figure they have the opportunity. Even those few companies that do guarantee their rates and closing costs up front are difficult to collect from if they should be stretching the truth. If I had a dollar for every time I told somebody that I didn’t believe a rate was real and they responded, “I’ve got the paperwork on it,” as if that settled the question (or made any difference at all), it’d make a real difference in my mortgage balance. Oh, most of the time from most companies, if they sign you up for a thirty year fixed rate mortgage, they will actually deliver a thirty year fixed rate mortgage, and the rate will generally be about comparable, albeit with two points and $2000 in extra closing costs they somehow forgot to mention (Quoth the loan officer: “Clumsy me!”). But until then, they’ll be throwing around all kinds of rates on all kinds of loans just to get you to call, to come in, or sit down and talk. Once that happens, they are confident that their A salesmen (see my essay on A salesmen and B salesmen) will get you signed up.

If you have a back up loan, you’ve got something else waiting to go. Another arrow in your quiver. Plan B. Your fallback position is defended. You’re not going to lose the house and the deposit and the extra money to prolong escrow if you don’t sign these papers right now. You’re not going to have to choose between completely missing the lowest rates available since your grandparents were children and are now unavailable and paying $6000 more than you were told for your refinance. You’re not hanging out there all alone at the end of the process after discovering that your trust was completely misplaced Here you have a solid, bona fide alternative. Imagine yourself with the ability to say, “No, I’ll just sign the other papers instead.” You’d be amazed at the leverage this gives you, with both companies if need be.

If you want to watch someone experience a truly amazing level of discomfort, tell a loan officer you’re signing up for a back up loan with someone else. Most of them will say literally anything and do their absolute best to talk you out of it. I’ll admit, even I would be momentarily nonplussed. I would hope that I would respond with “Okay. How do you want to handle the appraisal?” (assuming that it hadn’t already been done) secure in the knowledge that I actually intend to deliver the loan I said on precisely those terms. You see, given the circumstances, I don’t think you’re doing anything wrong. If you asked me, I’d have to agree you were simply being prudent. Because until I actually put the final documents in front of you for your signature, there literally is no way for me to prove that I intend to deliver that loan on those terms. (There are a lot of red flags that if a consumer runs across them mean the loan officer isn’t going to deliver the loan promised, but a competent loan officer can conceal them. There’s also one thing that happens on every loan that looks like a big red flag, but isn’t one at all). There’s a lot of paper I can put in front of you that makes it look like I intend to deliver the loan I promised. None of it actually means anything in the way of a guarantee. At the present time, the only form or piece of paperwork that a loan officer cannot play games with is a form called the HUD-1 – and that doesn’t come until the very end of the process. So until then, what you’re really relying upon is the loan officer’s good will to deliver the loan they signed you up for, on the terms you signed up for. Some fully intend to deliver the exact terms of every loan, and some will tell you anything to get you to sign up. Guess which the short-term dynamics of the marketplace favor. Here’s a hint: If the loan officer can’t get you to sign up for a loan, there’s an absolute gold-plated guarantee they won’t make anything.

If you shop multiple alternatives like you should for a mortgage, it’s quite likely somebody is going to tell you that the best rate you’ve been quoted doesn’t really exist, at least not at the level of closing costs indicated. That’s your perfect opening. Ask them “So will you volunteer to be my back up loan?” They’re going to try to talk you into going with them, of course, and forgetting that other guy, not to mention all this heretical, unheard-of, ridiculous nonsense about back up loans. Disregarding the fact that a back-up loan gives you leverage over them, they want you to put money in their pocket and not the other loan officer’s.

Not too long ago, I had one of my clients tell me somebody had told her I wouldn’t be making anything if I delivered the loan I promised. “Okay,” I thought, “She has a fair enough concern. There’s no way for her to know I actually intend to deliver this loan, and certainly no way real way to prove it until the HUD 1 is ready at signing. Just because it’s me doesn’t mean anything to her until I’ve actually got the track record of delivering what I quote.” Keeping this in mind, I told her something consistent with what I’m telling you right now. Offer to do the loan documents to make the other guy her backup if he was that certain – if he was wrong, the only cost would be that his work would be uncompensated, something loan officers get used to, and if he was right, he’d be right there ready to close his loan and get paid. (The other loan officer declined. She ended up with my loan – on exactly the terms quoted at time of lock).

Indeed, in my experience, it is more likely that the person who tells you something isn’t real is likely to be a closer approximation to ethical than average. This doesn’t mean that the person who gave you the best quote necessarily doesn’t intend to deliver. They could just be comfortable making less per loan than the competition. And this doesn’t mean you shouldn’t get back to the guy who gave you the low quote with some pretty pointed questions, including the information that you’re signing up for a back-up loan. Make the calls and stick to your guns. Maybe you’ll end up signing up with the second guy as a primary and find a different provider for your back up. It’ll depend upon factors I can’t see from here. But find the back up, if you can. If you can’t, it likely means that the guy who quotes you the lowest rate is quoting you something that at least exists, and he could potentially deliver if he actually wants to. But there is no way to prove he wants to. Which is precisely the reason you need the backup.

Word to the wise: Do follow up on both loans. Sign the application documents for both loan officers; provide your copies to both of them. And make certain, to the extent you can, that both loan officers are actually doing their work. The backup loan is useless as leverage if it’s not actually ready to go at about the same time as the primary. (This is one indicator as to which of the two loan officers knows what they’re doing. It has happened that on the last day to sign and still fund within deadline, I had my back-up loan ready to go, and the primary loan officer didn’t have theirs ready despite a head start. So I suppose I can’t prove the other loan wasn’t real – but it sure wasn’t ready on time, and that’s unreal enough to be another reason why you want to apply for a back up loan!

Caveat Emptor

Mortgages: General Concerns

A mortgage is basically pledging an asset that you own as collateral for a debt. If you default on the debt, the lender takes your property. When you’re talking about real estate in the state of California (and many others), this is generally accomplished by use of a Deed of Trust. There are three parties to a Deed of Trust: the trustor, trustee, and beneficiary.

The Trustor is the entity getting the loan.

The Beneficiary is the entity making the loan.

The Trustee is the entity which has the legal responsibility of standing in the middle and making sure the rules are followed. When the loan is paid off, they should make certain a Reconveyance is completed and sent to the trustor so they can prove it was paid off. If the beneficiary is not being paid, they are the ones who actually perform the work of the foreclosure.

One thing to keep in mind during all discussions of real estate and real estate loans is that the amounts of money involved are usually large – the equivalent of somebody’s salary for several years on every transaction. The temptation to fudge the numbers or even outright lie to get a better deal, or to get a deal at all, is strong. Many people don’t think they’re really doing anything wrong by fudging things a bit, but this is FRAUD. Serious felony level FRAUD. Fraud, and attempted fraud are widespread. There are low-lifes out there who make a very high-class living at it (for a while). Every lender has to devote a large amount of resources to determining that each individual transaction is not being conducted fraudulently. To fail to do so would be to fail in their jobs to protect their stockholders and investors. I can, and probably will, tell stories about the most common sorts. But the reason everything in every real estate transaction is gone over with such a fine-toothed comb that adds thousands of dollars to the cost of the transaction is that people lie. Every hoop that anybody is asked to jump through has a reason why it exists, and often that is because somebody, usually MANY somebodies, have committed FRAUD based upon that particular point.

One of the conditions I must attach, implicitly or explicitly, to every quote for services, is that this is based upon the condition that you are telling me the truth, the whole truth, nothing but the truth, and are being honest and forthright in your presentation of the facts without trying to hide anything and are specifically calling my attention to anything that you suspect may be a problem. And because the list of what is relevant information is long, complex, and conditional upon factors that are often opaque to non-professionals, sometimes, people quite honestly don’t realize that something is a fly in the ointment so they don’t mention it. I, or any other professional practitioner, have no way of knowing that said fly exists unless you, the client, tell me about it. Therefore what I tell you initially does not account for said fly. This is not unethical, it is just a due to the fact that I don’t have all of the relevant information..

When you’re talking about residential real estate loans there are basically two absolute requirements as to the nature of the collateral. The first is land – land as in real estate. A partial, fractional, or partial ownership of a common interest in land (as in a condominium) are each sufficient unto the task. A rented space to park your mobile home is not.

To that real estate, there must be permanently attached in a way so as to prohibit removal, or at least make it an extended project, a residence in which people can live. We’re all familiar with you basic site-built house. Personally, I’m a big believer in the virtues of manufactured housing. To paraphrase Robert A. Heinlein in precisely this context, imagine a car for which all the parts are brought individually to your home and assembled on site with ordinary portable tools in an environment which was not specifically designed to facilitate said assembly. How much would you expect to pay, and how would you expect it to perform? The correct answers are “A LOT more than for your house”, and “not very well, in terms of either reliability, speed, or economy.”

Nonetheless, when a lender looks at a house that’s been moved TO the site, they see one that can be moved AWAY from the site as well, and they are skeptical because so many people have done precisely this. Furthermore, the way that residential real estate is valued is arcane. The lot itself may be worth $400,000 here in California because it has $150,000 of improvements on it in the form of a three-bedroom house on it, but take away that three-bedroom home, and the lot may be only worth a fraction of the amount. So they loan you money based upon a $550,000 value of the combination as it sits. Some time later, you back your truck up to the house and cart it off, and then default on the loan, leaving the bank a lot may only have a value at sale of $80,000. Now imagine yourself as the bank employee who made the loan. How do you explain this to your boss? Over the years, many bank employees have had to explain this to their bosses, all the way up the chain of command to CEOs explaining to investors and stockholders. Lenders know that most people are honest – but they’ve got a duty to make sure you are among the honest ones. And if you subsequently lose your job and can’t pay your mortgage, might you not be tempted to back the truck up and haul the house off somewhere if you could so the bank can’t take it? There are good substantial reasons why many lenders won’t approach manufactured housing as residential real estate, and the ones who do treat it as such charge higher than standard rates, and place further limitations on lending.

I’ve been personally eyeing a beautiful manufactured home that more than meets my family’s needs, is in the middle of the area I want to live in, and is priced more than $100,000 lower than comparable sized and lower quality site built homes on smaller lots. Yet there is a reason for that lower price. It’s not like that owner just decided to list it for $150,000 less than he could get. The home carries many higher costs. If I buy that home, I am going to be paying for it in the form of higher loan costs every month, and higher loan fees every time I refinance until I sell it, and fewer people able to buy the home when and if I do sell it as a result of loan constraints, and a I can expect lower eventual sales price as a consequence – which is the situation that owner is in right now. I have reluctantly decided that those costs outweigh the benefits. My decision is regretful, but until somebody comes up with a procedure that banks agree makes manufactured housing equal in every way to site built in their eyes, it is also firm.

Caveat Emptor.

(And I must say that if somebody comes up with such a procedure, you will be a gazillionaire, and deserve every last penny and then some. I hereby publicly forswear all claims of compensation for the idea of such a procedure. If you can make it work and it makes you rich, I won’t ask for a penny, although any contribution you care to make voluntarily will be happily accepted. I just want to be able to say you got the idea from me, as part of my contribution to a better world)

Contents Policy

I’m have and will continue to spend a lot of effort to keep this site as civil as possible. While the use of profanity is not going to be banned outright, it will be heavily scrutinized and discouraged. In either posts or comments, the challenge will be to speak to the issues of the argument and debate, not to the personalities. Simply because something is not profane does not mean it will not be deleted, either, if a post or comment fails on this point, or on other grounds of merit (faulty logic, abusive, etcetera). Think of the site as not quite family safe, but where it fails to achieve family safeness I hope you will agree that the lapse will be compensated for by the content.

(I’ll admit I love a good Cluebatting, and am considering a category for it, where less restrictive policies apply, but am concerned it may sabotage the ability of the site as a whole to keep the debate civil. It is an unfortunate fact that these things do tend to spill over, and while a good Cluebatting is a joy to read, a poor one is pathetic, and they all tend to lower the level of mutual respect. I also am painfully aware certain people cannot be dealt with except by wielding a Plutonium Plated Nuclear Cluebat of Doom. My contention is this should still be the last resort, rather than the first.)

To encourage keeping the debate as issue oriented as possible, anonymity is going to be treated as somewhere in the spectrum from Officially Discouraged to Officially Frowned Upon to Officially Banned, with the emphasis tending towards the more severe end of the spectrum. Being anonymous is not being accountable for what you say and do. If I say something that’s mistaken, misleading, or just a flat out lie, my credibility and reputation should suffer appropriately, and if you want to share my stage, you’ve got to live by my rules. The only beneficial uses of anonymity that I have observed in my time on this planet thus far is the ability to call someone else’s attention to a situation, which that entity then investigates and stakes their own public credibility and reputation upon reporting. Even in mathematics or the hard sciences, unless your audience has the individual ability to evaluate the argument on its own merits (Something only a small portion of the populace possesses at the higher ranges), the debate usually comes down to credibility, and credibility proceeds from reputation. Anonymous has none.

I’m going to try to keep individual expert essays to a length most people can read in a break at work. If you want to submit one (or many), keep it to a manageable length, and aimed at a general audience of high school graduates. The point is not to bring the audience up to a professional level of competence, but to bring them to a point where they are educated consumers with a high probabilty of getting the best available bargain. In some cases, even a very narrow topic will require longer treatment, and that is fine, but the ambition is to make it comprehensible, accessible, and memorable, as well as accurate.

Links outside of this site require prior approval of the administrator (me). If your content requires linking an outside site, consider it rejected. Otherwise I get too many crap submissions the entire point of which is to link to a crap site. I am very careful not to be linking just to sell stuff – but that’s damned near unique.

Disagreement is welcome, provided it is supported by facts and reasoning. Simply because a comment is permitted to remain is not cause to believe I or this site agree with it. There is no point in attempting to foster discussion if only my own viewpoint is to be permitted.

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