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Recent News and Articles on the Keywords: run rampant + overcharges run + home  Related to the article below (Last Update: 5/5/2008)

Rumours run rampant with Edmonton rapper
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Wrong. "I like touring, but I hate talking about it," he says. "You don't really like to talk about work with your friends." Not so. ...
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A SIX-GOAL second quarter has trust Geelong in a strong position in its Round 4 match against St Kilda at Telstra Dome today. After training by seven points ...
Microsoft study says trojans run rampant
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Microsoft has published its fourth Security Intelligence Report. This study is based on statistics collected by the vendor's Malicious Software Removal Tool ...MSFT
Palmer stars as NSW run rampant over TAS
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ANDREW Palmer scored a double in NSW's biggest win of the Championship to date - a 6-0 goal fest over Tasmania. Entering day 6 in 3rd place (only on goal ...
Ethanol Rampant, Mogas Users Warned
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Source: Google News

[PDF] North Avenue Review [Winter 1998] -
F Bunke, DA Janecek, S Lucky, L Wingnut, B … - 1998 - smartech.gatech.edu
... performers are usually millionaires and still overcharge because they ... I grew up in
a home that had a ... the leadership skills and foresight to run the company ...
-

[PDF] TEXAS?HEALTH CARE
T INESS - tabcc.org
... costly mandated benefits that have run up the ... addition to outright fraud, overcharging
is also rampant. ... Reasons for the overcharges were double billing, human ...

[PDF] Abortion Costs And Financing AR EVIEW -
R Sundar - cehat.org
... The type of providers include government hospitals, family welfare centres, clinics
run by NGOs like the Family Planning Association of In- dia and Marie Stopes ...

Innerspace: A Spectacular Voyage to the Heart of Identity
R LANG - AMERICAN IMAGO, 1995 - muse.jhu.edu
... male relationship but the absence of home" (Wood 1986 ... never satisfy her, and he
(unwillingly) overcharges her ... of a heterosexual style of masculinity run rampant. ...

[CITATION] TROUBLED WATERS
S Postel - The Sciences, 2000

-
G Potter - Fed. Probation, 1971 - HeinOnline
... City in June 1971 erupted over charges that doctors ... consult may be the wisest, in
the long run. ... national bureaucracy despite the many rampant local divergences ...

Private International Cartels: Effectiveness, Welfare, and Anticartel Enforcement -
JM CONNOR - papers.ssrn.com
... The overcharge rate is slightly higher for the EU regional cartels than the US regional
cartels; the global cartels had average overcharges of about 27%. ...

[DOC] Private International Cartels: Effectiveness, Welfare, and
A Enforcement, JM Connor - agecon.purdue.edu
... The degree of overcharge has remained particularly steady ... Table 6. Percentage
Overcharges of International Cartels ... effective cartel deterrence in the long run. ...

[BOOK] Being Disciples of Jesus in a Dot. Com World: A Theological Survival Guide for Youth, Adults, and …
PA Thornburg - 2003 - books.google.com
... This house is the home of the United Nations ... about the existence of God have run
their course ... as we wrestle with hyperindividu- alism, rampant consumerism, and ...
-

[PDF] Innovative Solutions to Transportation Needs in the Colonias. -
D JASEK, B KUHN - 2006 - swutc.tamu.edu
... water run-off during rains. ... buying or building a home. ... These conditions have
lead to rampant problems with communicable diseases such as ...

Source: Google Scholar

Overcharges run rampant in home loans

By Jack Guttentag

Consumer groups believe that lenders should be held liable if they allow borrowers to take home mortgages that aren't suitable for them. In prior articles in this series, I concluded that a suitability standard was not an effective way to deal with bad mortgage selection, unaffordable loans or refinances that don't benefit borrowers. This article looks at suitability in connection with the problem of overcharges.

Borrowers are overcharged when they pay more for the same service than they would if they had the information needed to shop alternative sources effectively. For example, you pay 6 percent and one point whereas if you had known where and how to shop you could have paid 5.875 percent and one point.

I examine three categories of overcharging: lender steering, excessive broker fees, and loan officer overages.

Lender steering refers to the unsavory practice of soliciting borrowers for loans priced higher than those for which the borrower would qualify. Steering is often associated with prime borrowers targeted by subprime lenders and being charged subprime prices.

No suitability rule can deal effectively with steering. There is no way to monitor and enforce rules barring lenders from charging higher prices to particular borrowers than those available to the borrower elsewhere.

The best way to protect borrowers against aggressive solicitors of high-priced loans is to provide them with better alternatives. Vulnerability to solicitations is high when the soliciting loan provider is the only one the borrower knows about. If the borrower is even dimly aware that there is a group of loan providers that has been certified by a trusted source, vulnerability declines sharply.

I have tried to stimulate the development of certification as an accepted part of the home mortgage market by starting Upfront Mortgage Brokers (UMBs) and Upfront Mortgage Lenders (UMLs). These certified loan providers agree that they will not use their superior information to disadvantage borrowers. UMBs meet that charge by setting a fixed fee for their services upfront. UMLs do it by maintaining Web sites that disclose all the information borrowers need to shop effectively.

At this writing, there are about 200 UMBs and three UMLs. Other certification initiatives are in the works, though none are from the ranks of the consumer groups advocating suitability as a remedy.

Excessive broker fees arise primarily from a lack of transparency in broker pricing. Most broker fees are paid by the lender as a rebate or "yield spread premium" (YSP). For example, the wholesale lender who quotes a rate of 6 percent at zero points might pay a YSP of 1.6 points for a 6.375 percent mortgage. The borrower pays the higher interest rate but no cash out of pocket, and is either not aware of the YSP or becomes aware of it too late to do anything about it.

Dealing with this problem by applying a suitability standard to broker fees means making judgments about whether the fee in any particular case is too high. I find this idea morally repugnant: as long as society is not passing judgment on lawyer's fees or doctor's fees, it has no business passing judgment on mortgage broker fees.

Yet a very high mortgage broker fee differs in an important way from, say, a very high lawyer fee. The lawyer's client always agrees to the fee, whereas, unless the broker is a UMB, the broker's client usually doesn't.

The appropriate solution is not fee-setting but transparency. If borrowers know what the broker will make on their transaction, they will prevent overcharges far better than any suitability-based system for controlling fees.

One way to provide transparency is to require all brokers to operate as UMBs. Another workable remedy is to require that YSPs be credited to borrowers, who would have to agree to sign them over to the broker.

Whatever rule is adopted should apply to any transaction on which the loan provider receives YSPs from a wholesale lender. The legal status of the loan provider should not matter. It thus would cover the so-called correspondent lenders who operate just like brokers, and compete with them, except that they close loans in their own names.

Loan officer overages are an amount above the prices posted by a lender to its loan officers. The posted price is the acceptable price; the overage is gravy. For example, the lender posts a price of 6 percent and one point but the loan officer gets the borrower to agree to pay two points. The additional point is the overage.

Overages should be made illegal. Lenders should remain free to charge what they want, but their loan officers should not be free to take advantage of ignorance and naiveté to charge some borrowers more than others just because they can.

The writer is professor of finance emeritus at the Wharton School of the University of Pennsylvania. Comments and questions can be left at www.mtgprofessor.com.

Copyright 2007 Jack Guttentag

 
 
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