All Lenders are NOT Regulated Equally…..
Please note the statistical information in the following post is from the Commonwealth of Virginia, however, the overall outline of the differences in regulations governing different types of lenders may apply in other states as well. For those living elsewhere in the US, you should review the regulations for your particular state.
In 2006, The State Corporation Commission of Virginia reported the number of mortgage lenders and brokers it supervised at 2,952. Not included in this number, however, are federal banks, credit unions or commercial banks with “National” or “N.A.” in the name. What does this mean to Virginia consumers?
All mortgage brokers and wholesale lenders are required, by law, to disclose all fees, yield spread premiums, etc. paid on the settlement statement (HUD-1) at closing, since they are licensed by the SCC. Banks, however, are not. Consumers can be duped into believing they are saving money when dealing with these institutions because the fees they would normally find on their settlement statement from a mortgage broker or wholesale lender do not have to be disclosed by the banks. In addition, because the disclosure rules are not consistent across all institutions, some banks advertise programs that appear to the consumer as having ‘no fees’.
Any loan, no matter who the lender is or what loan program the consumer qualifies for, has costs associated with it. NO LENDER DOES LOANS FOR FREE!!! If the institution lending money to the borrower claims there is no cost for the loan, it only means the cost is not transparent to the borrower. It has been buried in the loan as a higher interest rate, a yield spread, a prepayment penalty, the loan balance or a combination thereof.
Borrowers should always ask the credit score(s) being used to determine their qualification by any lender. If their credit score is 720 or higher, special programs usually do not provide any savings to them and are better off with a conventional fixed-rate program. Sales pitches for ‘Special or First-Time Buyer Programs’ are unnecessary because these programs generally have a higher cost built-in to the program due to their broader underwriting guidelines and are specifically designed for borrowers with less-than-superior credit. Therefore, they are not cost-effective for a borrower with excellent credit.
The slow down in new mortgage applications in recent months has caused lenders to begin advertising ‘no closing costs’ loans as a means of soliciting new applications. Unless the borrower is well informed on the mortgage process and able to clearly read ‘the fine print’ of all the disclosures thoroughly and understand them, the likelihood that they may pay costs that they are unaware of is fairly significant.
This is one more area within the mortgage industry where advertising hype and inequitable regulation can result in higher costs to consumers.
Consumers will not be able to make their best mortgage choice until the mortgage process, all disclosures and fees are transparent to them, regardless of whether the lender is a broker, wholesale lender, credit union or federal bank.