Mortgage borrower’s Bill of Rights

Guest perspective: Consumers and ethical lenders suffer from lack of transparency

Editor’s note: Mike Dodge, general manager of the Home and Real Estate Division at Internet Brands, wrote the following perspective in response to recent calls for consumer bills of rights in the real estate industry.

In February, hundreds of JetBlue passengers got stuck on a plane for hours during a snowstorm. The resulting public outcry was a sign that Americans are growing increasingly frustrated with the often-ambiguous customer service policies of big companies in major industries. JetBlue’s subsequent decision to create a Customer Bill of Rights rekindled the debate over whether big industries should publish open standards spelling out business practices in plain language.

Many organizations — particularly those in high-profile industries such as insurance and auto sales — have since taken steps to create their own versions of a customer bill of rights to increase transparency. There’s no doubt the idea is spreading; in fact, two proposals have recently appeared in Inman News: a Real Estate Consumer Bill of Rights and a Home Seller’s Bill of Rights.

My company has been watching these developments with great interest. Since the day we began working on the launch of Loan.com, our research showed us that launching a mortgage-shopping Web site meant we were entering a complex industry that consumers often look at suspiciously. And for good reason — some unethical lenders take advantage of the complexity of the loan process in order to profit at the consumer’s expense.

Unfortunately, federal and state laws provide only limited protection, since many “shady” practices aren’t considered illegal. This is becoming painfully apparent as business headlines are dominated by news of the “subprime meltdown” and escalating foreclosure rates. And it’s not just consumers who are suffering — ethical lenders with solid business practices are being forced to deal with a slowing market and poor overall perception of the industry.

With this in mind, and with the JetBlue controversy still yet to unfold, we decided to make ethical lending practices the core of our business model. As we explored this idea, we came up with our own consumer bill of rights — what we call the Borrower’s Bill of Rights.

Our Borrower’s Bill of Rights serves two purposes — it protects the consumer, and it also benefits ethical lenders who simply can’t compete with unscrupulous lenders who charge hidden fees or practice “bait-and-switch” tactics. The Bill of Rights levels the playing field by creating a trusted marketplace consisting exclusively of ethical lenders who understand the importance of delivering these rights even though they are not obligated by law to do so. The lenders in our ethical rate directory have attested that they adhere to these principles.

Here’s a look at the Borrower’s Bill of Rights, and the ideas behind it:

1. Competitive rate quote: Lenders must base their rates on individual credit and price the loan competitively.

2. Rate quote that won’t change: “Lowballing,” also called “bait and switch,” is all too common in the mortgage business. Lenders must provide a rate quote that won’t change — and if the quote does change, it should only be for valid reasons (such as underwriting issues).

3. Accurate explanation of credit status: Lenders must help customers obtain and understand their credit report, fairly assess any issues in the report, and help fix those issues.

4. Fair fees: Unethical lenders charge borrowers excessive fees. Because these costs can be financed, they are easy to disguise or downplay. Lenders must charge fair, reasonable fees, which usually run around 1 percent to 1.5 percent of the loan amount for prime borrowers and 2 percent to 4 percent for subprime borrowers.

5. Upfront, full disclosure of all lending fees: Lenders will provide and abide by an upfront, accurate disclosure of all lending fees.

6. Accurate closing date: Lenders must provide and meet a set closing date to avoid delays that might cost customers money or delays in getting needed funds.

7. Immediate notification of underwriting issues: Lenders must provide immediate notification of underwriting issues and work with customers to address any issues immediately to keep the closing date from slipping or causing the rate to change.

8. Confirmation of a rate lock: Lenders must lock rates when asked to and provide confirmation in writing.

9. Exceptional customer service: Lenders must provide exceptional customer service, including:

  • Being reachable at customers’ convenience
  • Having back-up contacts if they are unavailable
  • Helping customers complete all paperwork
  • Using overnight or courier services to expedite paperwork
  • Having convenient notary services available
  • Having a simple closing process
  • Answering all customer questions and referring customers to other experts as necessary

10. Advocacy with lender/underwriter: Lenders must act as a customer’s advocate with the loan underwriter and effectively manage the process with this person by:

  • Pushing for fast approval
  • Getting feedback on what’s missing in a customer’s file to complete the process
  • Getting a rate lock as soon as possible
  • Helping customers address any issues that arise from the underwriter

11. No surprises at closing: Lenders must ensure that there aren’t any unwarranted surprises at closing — no changes in loan terms and no previously undisclosed fees.

12. Help after closing: After closing, lenders must continue providing prompt and clear answers to customer questions and concerns as they develop.

Skeptics of the Bill of Rights concept say that these guidelines are merely a marketing ploy designed by companies to lure consumers into a false sense of security. And while half-hearted attempts at establishing guidelines probably do exist, a solid, well-thought-out customer Bill of Rights can raise the bar for entire industries by establishing a fair marketplace that not only protects consumers from unethical and illegal practices, but also protects legitimate organizations from unscrupulous competitors.

We hope that similar guidelines that are mutually beneficial to consumers and businesses will be adopted by our peers in the industry, and that open standards are implemented in many more industries and services that Americans rely on every day.

Mike Dodge is general manager of the Home and Real Estate Division at Internet Brands Inc., which operates Loan.com, among other sites.


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