New book cuts through mortgage 'mumbo-jumbo'

Known as “The Mortgage Professor” by his nationally syndicated newspaper column readers, Wharton School of Business professor emeritus Jack Guttentag shares his insider knowledge in “The Pocket Mortgage Guide.” Written in question and answer style, each chapter answers a few questions on the same topic.

For example, in the first “Buying a House” chapter, Guttentag answers questions such as “How much can I afford to pay?” and “How do lenders decide how much I can borrow?” The answers are detailed, yet not overly lengthy.

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This is definitely not a boring “how to get a home mortgage book.” Instead, it is concise and direct, often including unique approaches. To illustrate, the author says mortgage affordability must be calculated using the income rule, the debt rule and the cash rule. Then he explains each mortgage affordability rule.

Guttentag’s approach is pro-consumer. When necessary, he reveals mortgage lender abuse scams, such as mortgage brokers who tell borrowers their interest rate is “locked” when it really isn’t because the mortgage broker is hoping rates will drop and he will profit.

The author cuts through the mortgage mumbo-jumbo with no-nonsense explanations. For example, in answer to a question about FHA home loans, Guttentag responds: “FHA loans are for borrowers who seek loans no larger than the loan size limits set by the FHA program, and either can’t meet the 3 percent down payment requirement, have poor credit, or both.” Then he explains more details.

A unique feature is the “upfront mortgage broker” (UMB) explanation. The author says a UMB discloses their fees in advance and in writing, aligns their interest with the borrower’s by suggesting loan types that might not be the most profitable for the UMB, and credits borrowers with any rebates received from lenders. Then Guttentag tells where to find these UMBs.

The book’s most educational and challenging chapter explains mortgage pricing. The author emphasizes the price of a mortgage is not just its interest rate, but also the points, rebates, origination fees (points in disguise), junk fees and the full interest rate.

In the chapter about shopping for a mortgage, Guttentag is at his best when he says, “Lender fees should be the shopper’s major focus.” Then he explains how to negotiate with lenders, such as by asking for dollar fees rather than percentages. He even names the names of major retail lenders who now guarantee their dollar fees.

However, the author warns, “Furthermore, even if a determined borrower succeeds in bludgeoning the lender into making a change, the determined lender can get it back somewhere else. This is a game the borrower can’t win.”

But the book’s most valuable chapter for borrowers explains what to do if the mortgage loan servicing is bad. Guttentag reveals when PMI (private mortgage insurance) can be cancelled and how to effectively complain about dishonest or ineffective loan servicers.

Chapter topics include “Buying a Home”; “Getting Qualified and Approved”; “Basic Mortgage Terms, Features and Costs”; “The Different Types of Mortgages”; “How to Understand Mortgage Pricing”; “Shopping for Your Mortgage”; “Locking the Interest Rate”; “Refinancing Your Mortgage”; and “After the Loan Has Closed.” The superb appendix includes monthly payment tables and an easy way to calculate your loan balance.

This new book should be required reading for every home buyer, real estate agent, homeowner who wants to refinance, and mortgage lender. It not only answers borrower questions, but reveals dirty secrets lenders don’t want borrowers to know. On my scale of one to 10, this outstanding book rates an off-the-chart 12.

“The Pocket Mortgage Guide,” by Jack Guttentag (McGraw-Hill, New York), 2004, $9.95, 90 pages; Available in stock or by special order at local bookstores, public libraries and www.amazon.com.