- The Washington Times - Wednesday, April 12, 2006

There’s no question about it, the mortgage business is slowing. Fixed rates are up, adjustables are up, home equity rates are up and the housing market has ebbed. But these things aren’t the only telltale signs of a slowdown. Aggressive sales and advertising tactics are up, signaling a more desperate industry.

I put on my consumer’s hat and made a few phone calls, poked around the Internet, and read the fine print on various published mortgage offerings. My findings? All is not necessarily what it seems after you dig a little deeper. Here a few examples.

• A federally chartered bank puts a large advertisement in the newspaper touting a home equity line of credit with a rate equal to the prime rate minus 3/4 percent. As far as equity lines go, that’s a great deal.

But seeing as the prime rate is now at 7.75 percent, compared to 4 percent a little more than 11/2 years ago, home equity lines aren’t the deal they used to be, no matter how you slice it.

What caught my eye was the “no closing costs” statement in big letters. Anyone who has read my column knows that I’m a big fan of mortgage financing with little or no transactional fees.

Like most other ads, the bottom space is reserved for the fine print, used for clarifying the details of the offer. I put on my reading glasses to digest the content.

Sure enough, the “no closing costs” offer includes bank fees and settlement charges, but not county recordation fees. In Virginia, recordation fees are equal to $3.40 per thousand on the loan amount. A $100,000 home equity line would carry $340 in recordation costs not covered by the bank.

Recordation fees on a $200,000 line would be $680. This is hardly a “no closing cost” deal.

• I browse around some more and notice that a large national federal credit union is offering a no-down-payment mortgage for home buyers with no private mortgage insurance (PMI). PMI is a monthly fee added on to the monthly payment if the loan amount exceeds 80 percent of the purchase price.

That’s not a bad deal: 100 percent financing with no PMI. I check out the fine print. Sure enough, there’s a 1.50 percent “funding fee” that will be financed into the loan amount. This means that in order to fully finance a $400,000 home, you would need to borrow $406,000. Instead of paying PMI, this credit union deal starts you out upside down in your house to the tune of 1.50 percent, or $6,000 in this example. It’s not such a great deal after all.

I call the advertised phone number to confirm my understanding. After what seemed like endless button-pushing under the direction of a voice computer, I am finally put on hold by the machine only to have another voice machine tell me that all representatives are assisting other customers and my approximate wait time is 16 minutes and 30 seconds. Forget it. I hang up.

• I channel-surf some business stations and decide to log onto the Web site of one of these huge national mortgage companies that advertise constantly on television. I plug in some numbers to refinance a home: A $315,000 30-year fixed-rate mortgage secured against a property worth $500,000. I choose the zero-closing-cost option. I read the fine print. I call customer service and, to my delight, am able to talk to a human. I ask questions. I make sure that the refinancing truly carries zero closing costs. I’m convinced. No points, no recordation fees, no lender’s title insurance fees, no appraisal fees.

So what’s the problem? I click on the icon to get the rate quote and 7.125 percent pops up on the screen. That’s the problem. The rate isn’t competitive. I search through my wholesale lenders and discover that on the same day, I would be able to offer the same 30-year fixed-rate, zero-closing-cost refinancing at 6.50 percent.

I guess someone has to pay for all that advertising.

The days of “order taking” in the mortgage business are over, albeit for now. Don’t be surprised if lenders and brokers kick up the sales pressure a notch.

Henry Savage is president of PMC Mortgage in Alexandria. Reach him by e-mail (henrysavage{AT]pmcmortgage.com).

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