Loans for “high risk” borrowers - those with no down payment, poor or no credit history or unusual income situations - have opened the door for homeownership to millions of people. They’ve grown dramatically in the past decade, accounting for 10% of home loans 10 years ago and 20% now. But Freddie Mac, the government sponsored secondary mortgage market maker chartered to encourage affordable housing, estimates that 20% of borrowers who get these loans could have qualified for lower interest rate conventional mortgages.
Only 1/3 of states require mortgage brokers to work to get the best rate for borrowers and even those protections only go so far. Typically they only require a broker to get the best rate from lenders with whom they usually do business, so a broker specializing in sub-prime loans won’t even have prime rates available. Many protections only apply to smaller loans. In California, for example, protections only apply on loans up to $359,650, leaving out most of the jumbo mortgage products that are typical in California’s high priced housing markets.
Consumer advocates say it’s a “borrower beware” market. Companies and independent brokers generally are not legally required to tell customers that they might get a better deal elsewhere, and regulations have not kept pace with the booming mortgage refinancing market and skyrocketing home prices.
Source: More Homeowners With Good Credit Getting Stuck With Higher-Rate Loans - Los Angeles Times
One Comment
Hello from a uk mortgage broker.
I’m amazed that’s allowed. Recently in the UK a broker had to pay compensation to a client who had requested the “lowest possible rate” - and that was on a prime deal. The rate wasn’t that much different either.
We also have an overall policy called “treating customers fairly”. Anyone “mis-sold” can complain,and pursue compensation, without cost.
Your laws seem wide open for customer abuse from a uk viewpoint
Tony
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