Mutuo Caveo

Many of us have heard the phrase, “Caveat Emptor” (buyer beware); however, often “Mutuo Caveo” should be a philosophy followed with just as much, if not more, zeal.  “Mutuo Caveo” is the Latin term meaning, “borrower beware.” 

Why should a borrower be so wary?   Simple, unfortunately a large number of mortgage un-professionals are out there, masquerading as loan officers, loan originators, mortgage brokers, etc. looking to make a quick buck, at your expense. 

It seems on a near daily basis, I hear another horror story of a borrower suddenly discovering they have a prepayment penalty when they were promised there would be none.  Or a borrower suddenly discovers their “fixed rate” mortgage is actually an adjustable rate.  Sometimes at settlement, which is particularly hard on a buyer who has already cancelled their lease, or sold their home and has nowhere to live if they don’t settle, or has a large earnest money deposit at risk.  More often, it seems that the borrower does not realize they have been the victim of an unscrupulous mortgage un-professional until they either have a rate adjustment, or find themselves hit with a prepayment penalty when they attempt to refinance.

Unfortunately, there is very little, if anything, a borrower can do after the fact to counter such occurrences.  The borrower signed the closing documents, including the note (plus addendums and riders) and truth-in-lending statement, both of which detail any rate adjustment possibilities or prepayment penalties.  Also, it seems businesses that practice such tactics frequently close up shop, and reopen under another name, making them virtually untouchable for prior acts.

Adjustable rates are perhaps the most often misrepresented aspect of a mortgage, as there are two meanings of the term “fixed rate.”  The generally used term means your rate will remain constant for the entire life of your loan.  However, the technical meaning of a fixed rate is that it has some time period(s) that it can not change, as opposed to a variable rate, which can and will fluctuate any time the index changes.  Far too often, I see advertisements for “Fixed Rate Mortgage at 1%!!!!”  Knowing mortgage products, I know that that rate can only come from a one month adjustable ARM.  Technically, yes, it’s fixed, but, only for a month.

What then, can a borrower do to protect himself or herself from such surprises? 

First and foremost, read. 

Inform your mortgage lender that you require an extra copy of all initial documents to review with your attorney.  Read over them carefully, and, if you do have an attorney, allow him or her to go over them with you.  If your loan officer believes an attorney is going to be reviewing everything, he will be much less likely to switch things up on you at the last minute.

Ask for a copy of your HUD-1 (settlement statement) and Note (with any and all attachments or riders) before closing.  In most cases it will be available the day before settlement.  Sometimes it is not, but, with rare exceptions should be ready at least an hour before your settlement appointment.  Let your lender and/or Title Company know before hand that you would like time to review these documents before settlement.  If they are unwilling to provide them, read them, very carefully, during settlement. 

Generally, a settlement agent will attempt to get through a settlement rather quickly.   This is understandable; however, if they can’t provide you with at least the two above referenced documents for review ahead of time, make them wait while you read them thoroughly.

At settlement, if you have ANY questions or concerns, ask for a full, detailed, explanation before signing.  If the settlement agent seems unwilling to explain, call your loan officer (if he or she isn’t there) and have him or her answer your questions.   Once more, if you have one, bring an attorney with you to settlement (or have your attorney review the documents with you beforehand).

If you have a rescission period (mostly only on refinances) take that time to double check all documents you signed to ensure everything is as it’s supposed to be, and, if possible, have your attorney or other trusted advisor glance over the paperwork.

If you are unsure of something, ask for an explanation, in layman’s terms, in writing, signed, on company letterhead.  If your lender/broker is unwilling to provide one prior to the expiration of your rescission period, rescind.  If they are, at least you have proof that they may have acted in bad faith should you later learn that your loan product was misrepresented.

Organizations such as the Better Business Bureau and government consumer protection agencies can be a great help if you do find yourself the victim of an unscrupulous loan officer or lender, however, it is always best to protect yourself now, rather than trying to have a situation fixed later.

There are thousands of hard working, honest, knowledgeable, and forthright mortgage professionals out there.  If you are ever unsure of the deal you are getting, contact another broker or lender, I’m sure they would welcome the opportunity to expose a dishonest mortgage un-professional.

Written by:
Neil R. Davies, Lending Manager, Infinity Mortgage Lending, Inc.
The author can be contacted with any questions or comments by email: ndavies@MyInfinityLoan.com