As far as the state is concerned, lenders can charge whatever interest rates and fees they wish. But state law requires full and complete disclosure up front of all rate, fee and amount to be financed.
Three of the four complaints received by the state named the same loan representative as the one who did not make full and proper disclosures.
Samy Khoury, manager of the First Alliance office in Bellevue, said the loan representative who sparked the complaints is no longer with the company.
Khoury added that local loans are now originated in the Bellevue office. The loans that generated complaints were the result of telephone sales calls and in-home appointments.
One complaint filed with the state came from a senior couple
upset because the loan representative who called them said he could save them $300 a month if they signed up for an adjustable-rate loan starting at 9.1 percent interest. The couple already has a 15-year fixed-rate mortgage at 8.25 percent interest.
First Alliance has rescinded the loan of another customer who complained. They also have refunded money to a Bothell woman who hired an attorney after finding, among other things, that her loan origination fee was $6,062.67 - 17 percent of the loan amount.
Another customer, a Federal Way woman complained that she was charged a $11,632.49 loan fee on a $59,238 loan. First Alliance later lowered her loan fee.
Some consumer education is in order here. First Alliance is what is known as a "non-conforming" or "hard-money" lender, which means it specializes in lending to borrowers who have been turned away by other lenders.
"We are in the business of making loans that have a greater amount of risk," Khoury said. "We do good things for a lot of people, but we can't give them the best rate available if they don't qualify for it. If these people were not a difficult risk, they would have gone to a place like Seafirst or Washington Mutual. In fact, many of them have and then came back to us."
As risk to the lender rises, so does the interest rate to the borrower. For example, nonconforming lenders may charge 15 percent to 17 percent interest with fees of 8 percent to 10 percent of the loan amount for higher-risk loans.
But they always need to take the time to explain the situation thoroughly.
Ed Laine, who specializes in high-risk loans for Investors Mortgage Company, said, "Some lenders will now say they are not charging points because consumers hear (about) one-point loans on the radio.
"But then the lender might slide in a flat-fee loan origination fee that amounts to about 12 points. Obviously, all of this needs to be explained to the customer."
(Loan fees and discounts are commonly referred to as points. A point is equal to one percent of the loan amount.)
There are some lessons here for all mortgage loan applicants as well as some special cautions for those applying with "hard money" lenders.
-- If you are a consumer, always demand an explanation of all fees. If there is no appraisal fee listed, for example, look for another fee that appears to cover it.
-- If you don't understand the lender's explanation of a number or fee, spend the time and money to seek out someone who does - before you sign.
-- Always get the total amount to be financed in writing on the good faith estimate, or have it attached to the good faith estimate.
-- If you are a high-risk borrower, expect to pay higher interest rates and higher fees for home loans.
-- And if you are a high-risk lender, let your customers know just how high you are.
