So who’s fault is it if a borrower doesn’t understand their loan? We’ve heard a lot from candidates on how the problem is shady mortgage brokers, so I thought we’d look at the flip side today– there are definitely borrowers who are their own worst enemy.
This was posted by "Moneyluck" at Broker’s Outpost. How can you help a borrower like this?
I’m just ordering the last item on a purchase loan . . .P and S date is about 10 days away. The borrower calls me and says she got a call from XXXXX bank’s retail call center on the other side of the country, and they are offering her a better deal. Now, this was in a rising rate environment a year or two back, and she had been locked with me for almost a month, so I was pretty skeptical and I tell her to bring in the papers.
She hems and haws . . .and finally brings the papers in.
I am getting her 6.625% on a one loan 3-fam purchase, some hairy exceptions, tough deal.
XXXXX retail’s GFE says 7.5%, paying nearly 2 points.
I point out to her that that doesn’t look like a better deal to me. We go through the exact payments (mine was way lower), what a "point" is, etc. Basically, this was no contest.
After an hour of going through all this, she says . . ."Yeah, I hear what you are saying, but I think you are making a mistake. Your rate is ‘six-six-two-five’, and hers is only ‘seven-five’. Yours has four numbers and hers has only two. I really like you, and I’m sorry that you have gone to all this trouble, but I’m going to go with her, because her rate is lower." (?????????)
I tried for another hour to explain a decimal point. I asked her if there was anyone in her family that might want to give her a second opinion. Nope.I thought she was hiding something, but I checked it later. She really did close with the "seven-five".
The realtor tried to get her to go back to me . . .I kept calling, had the attorney call, nothing. The retail lender delayed her closing and got everyone all kinds of ticked off.
I was kicking myself for not thinking fast enough. I should have told her I could give her "seven".
She sends me an Christmas card every year,though, "for my trouble". hahaha.
What kind of borrower was this? According to Moneyluck:
This [was a] middle class borrower, good job, stable adult who totally couldn’t handle the decimal.
If the borrower didn’t understand the decimal, what are the odds that she understood anything else?
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Wow!
I wonder if they understand the green/yellow/red thingy on the road?
Probably a dozen years of public education represented there.
Perhaps this is the theory “natural selection” at work?
I have to shake my head… but I guess you cannot legislate that people understand basic Grade 7 math, can you?
Similar to what the story says, my first reaction would have been to offer her “six-eight”.
This story also reminds me..occasionally on the radio I hear “professionals” reading financial numbers like 6.125 as “six point one-hundred-twenty five”, which is an absolute no-no because of course as soon as the same person reads 6.55 as “six point fifty-five”, it gives the false impression that the latter number is lower.
So who’s fault is it if a borrower doesn’t understand their loan?
I’m going to have to be the uncaring jerk today and say that it’s the borrower’s fault. If you sign an agreement that you don’t fully understand (especially involving the most debt you’ll take on in your lifetime!) that’s 100% YOUR fault.*
Good find twist. I’m sincerely hoping that this person is in the vast minority…
*Except in obvious cases of lender fraud/ineptitude, such as switching out the final docs, last second rate changes, typos, etc. This exception does not include anything spoken to said borrower, as that’s one person’s word versus another’s, and you should have known what you were signing no matter what they said.
A middle-class borrower with a good job who thinks that 6.625 > 7.5 because it’s 4 digits vs. 2? I don’t believe it.
And by that, I don’t mean “Wow! I’m amazed,” I mean “I believe the story’s fabricated.”
I agree with NVmike, however it really is the buyers fault a lot more often than anyone wants to admit. Imagine a politician saying, “I can’t believe how stupid you voters are!”
My friend with the $4,300/month mortgage was warned– by me! But everyone was doing it. Safety in numbers.
Dan
I know that one anecdote or example does not make for compelling evidence of anything in general, but I’m thinking of this case as a metaphor for a larger condition.
What business does anyone have for making major financial and planning decisions in their life without understanding the fundamentals of finance or planning itself?
For anyone here who thinks this “decimal problem” is limited to the other guy, I disagree. I do management consulting around the country and almost everything I bring to the table by way of models, templates, tools and techniques are fundamental, not rocket science.
Pro athletes who don’t know the fundamentals…managers and executives who don’t know them…housing and stock prices detached from the fundamentals…that’s the larger condition that worries me the most.
The good news is that our society may not be suffereing so much from a loss of character, integrity, values, or intentions. But our grasp of the fundamental techniques for doing things effectively seems to be in jeopardy.
And why? I think we’re being “taught” to do things the easy way too often and to not remain committed long enough to master fundamental things. Talk about a sure-fire way to erode an economy.
…”newboss”…same as the old boss???
After experiencing some shady little activities by a lending agent, I too believe this is fabricated. These guys are bottom feeders. The problem she more than likely had was his phone conversation did not jive with the docs he sent her to sign.
I am having a second issue with a totally different lender, I have posted previous experience in another post, but this one occurred last night.
Lender tells me this is the rate with 1 point (5.25) and these are the costs (7000). I ask him about the option with no points, and he says here is the rate (5.875) are the new costs (5300)with no points. Docs arrive via email (Good Faith) and wham, the rate is 5.875 and the costs are 7000. I call back to clear up the confusion, then here comes the dummy speak. These people are shisters. Their job is to dupe people out of cash, I mean he must have thought that I would not read the docs and just sign away. I tell you, it is easy enough for someone educated to catch these two bit criminals trying to rip you off, but I can still hear them in their little circles saying “it only takes one a month, kind of like fishing”. They need to regulate the hell out of these people so that there is ACCOUNTABILITY, they quote if I lie on their application about anything, I can serve time. What about the flip side, if they misrepresent and behave like a used car salesman can they be prosecuted. Let’s see some discussion on that topic Twist.
Peace.
NVMike-
I tutored math in college- I believe the story.
I had a roommate for several years who was bright in every other respect, but she just couldn’t do math. Most of the time I could eventually get something to sink in, so she’d tell other kids in her class, and they’d all show up at my apartment. Sadly, they were all women and all elementary ed majors.
You haven’t lived until you’ve spoon fed someone an algebra problem, step by step. Then you’ve said, “OK, last step. If 4X = 4, then what does X equal?” then they have absolutely no clue.
When I was having new carpet installed once, I got to talking to the store owner. He told me about a high school graduate that he had to let go a few months prior.
He said it was tough at first because the kid had no idea how to use a ruler, so he had to be taught how to measure. He was finally able to figure it out, but the kid never could keep straight which was thicker pad [I don't remember what thickness they come in anymore. Maybe 1/2" and 5/8"?] because he had no grasp of fractions.
Trust me, there are a tremendous number of adults, particularly women, who have a dangerously poor grasp of math.
I am the mother of five kids, [Three of them girls.] and I always taught them that if they don’t learn to count, they will be the victims of those that can.
DCBeacon-
I remember Mohammed Ali saying once, “I can’t count, but I can afford to hire someone who can.” I thought it sounded like he was at least smart enough to recognize his limitations.
No one can be good at everything. There’s a lot to be said for paying someone with a better grasp of the situation to review the paperwork before you sign it.
Jasaz98-
Your experience is way too common– no question there are a lot of crooks out there. There are some great mortgage brokers out there though. [I know some.] They often lament how they lose business to the crooks that promise more than can be delivered, then in the end, the customer didn’t get what was promised.
What especially sickens me is the elderly I have talked to that have been taken advantage of.
That said, picture a situation where someone goes in to buy a used car. We want salesmen to be accountable, we appreciate the lemon laws, but when the salesman tells us, “It was only driven to church on Sunday by a little old lady.” most of us are skeptical, do our research or walk. Not enough home borrowers exhibited the same level of caution.
Unfortunately, I have seen the glazed looks of borrowers at the time of closing and heard the stereotypical “uh-huh” when they were asked if they understood everything they were signing. Do you kick the deal because they might be lying? Unfortunately, we should have but didn’t.
The real question here: When does the individual become responsible for their own actions?
I believe that this story represents a very large number of borrowers. This has been illustrated to me by listening to neighbor complaints of their rising mortgage payments…..looks like I’ll be mowing their lawns by summer.
While I agree that a lot of brokers/lenders had very poor ethics as jasaz98 pointed out, the people in the business for some time remind me of the illustrated lender/broker in this story. I agree with significant regulation changes in favor of the consumer. The professionals in this business will probably enjoy that as it will weed out the garbage brokers.
I don’t think we do enough about educating the consumer on what it is they are signing. We require classes and education to drive. Perhaps a mandatory class or set of classes is in order prior to a bank lending the money (for everyone at least for the 1st loan). I have not heard the “buyer beware” verbiage in some time and think people should be told what could happen so accountability can fall back on the individual. As twist pointed out, they could then hire someone (and might) if they know that the liability was their’s.
The no child left behind program/philosophy is having a reverse and negative impact on a lot of things. It simply pushes the weakest link through when they should be better educated or need to work harder.
This is truly awe and fear inspiring. These are the last days of the republic.
Igor’s word: ruin.
Indeed.
I have never agreed with the ‘it’s the lenders fault’ mentality. I think most of the problem is people signing papers they either do not read, or knowing they are buying a home they could not afford with a normal fixed rate mortgage.
Owning a home is a privilege, not a right.
Lenders are in business to make money. A better deal for a borrower means a worse deal for a lender. That being said, there are borrowers out there who are in a position in life that they don’t make big issues over the details. They want the house, they have a good income and assets, and they don’t make a very big deal over the bottom line. Sometimes they will go with a mortgage broker who appeals to them for reasons beyond saving them some money on the loan. Are they dumb? Some of them are, but some of them don’t really mind overpaying a bit because they can afford to. I have seen quite a few homes being bid up far and above what they were actually worth, just because the particular buyer had a fancy for them.
They should have gone for “Ten” – only three letters in the word, and a nice round number.
>>A middle-class borrower with a good job who
>> thinks…I don’t believe it.
Sorry to hear that, but they are definitely plenty of people like that out there. Although they are a minority, they are out there.
>>middle-class borrower
There are a lot of people out there with ‘good jobs’ that don’t have to do any math, or be capable of doing math, whatsover. (For a cheeky example, President to of the United States).
Also, you cannot assume that just because somebody is middle class that it means they have basic skills in all areas (eg. math). Some everyday examples: a lot of people may have come into a modest inheritance, or been awarded a large sum from a divorce settlement(whereby the former spouse had been the “bright” with the high-paying job). If Parison Hilton was given a billion dollars from her grandfather, would we then have to assume she can do basic algebra?(I wouldn’t bet on it).
Combine either of those two scenarios above with a McJob and you are (or were) suddenly “middle-class” and eligible for a mortgage.
Now, here’s another example we all know, of how little brains (and money) it takes to qualify for loans: that “Casey” fella that had that webiste “iamfacingforeclosure.com”. He had something like half a dozen mortgages (foreclosures) to his name, many of them at once. I don’t believe he even had a job, much less could have qualified by anybody’s definition as being “middle class”. And, to put it nicely, he was most definitely not the brightest of thinkers.
As a university student a few years ago I worked in retail, and let me tell you, you have no idea how stupid some of the public is until you have worked in retail. Really.
Oh, and don’t even get me started on how many bank tellers I have had the displeasure of meeting, who cannot even count money! I was once accompanying my father as he deposited roughly a couple thousand dollars cash, and watched in horror as the teller counted the money four times and came up with a different total every time.
And then there’re the cashiers that don’t know basic math. That happens so often, I am not even surprised by those anymore (although I watch transactions closely). Recently at a big-box department story, a cashier couldn’t even calculate how much to deduct from my bill when I gave her a “10% off” coupon. Seriously.
Twist, if the story is true, then the borrower, a middle-class adult with a good job, not a struggling student in math class, must also think that $6.62 is more than $7.
That $3/gal gasoline is cheaper than $2.979/gal gas.
Come on! There’s no way I can accept the story as factual.
I believe it 100%.
She has her PhD (Public Highschool Diploma!)
With the dumbing down that’s going on in America for the past 25 years (and counting), I would say the majority of these dummies are college educated.
I too have watched in amazement as my teller counts out my change back from a deposit 4 times and almost breaks into a cold sweat as if the amounts were changing somewhere between the 3rd and 4th try. Now I deduce that you cannot get a job as a teller unless you have or are in the process of earning you bachelors degree, so let’s think twice about the level of education people who make dumb decisions really have.
I know many individuals who have only a high school education that are a bit sharper than your average college graduate these days.Just my 2 cents worth.
NVMike-
I’m a long time “lurker” on Broker Outpost and I’m familiar with the chatter over there. There are those posters without any credibility, but “Moneyluck” isn’t one of them. I believe him.
>>…if the story is true, then the borrower,
>>must also think that $6.62 is more than $7.
Why is that?
It is entirely possible that the person gets hung up by “percentage” figures in particular from some reason, and sees them in a completely different (and illogical) frame of mind than regular monetary transactions.
In other words, I’m not so sure we can apply logic (like yours), that obviously makes sense to you and I, to the mind of an irrationally thinking (or poorly educated) person like the lady in this thread’s story…
I think your monetary example would have been a good way to teach her why her thinking was mistaken, though.
By this story, I don’t think we can determine anything but the woman’s level of foolishness.
To suggest that a ‘public school education’ is the problem… is just guessing.
Sure, she was an idiot. I believe the story. I am a teacher in public schools.
We have to teach whoever shows up, smart, or dumb, rich or poor. Guess which groups usually show up at our doors, and which groups show up at the private schools’ doors?
MikeC-
My ten year old daughter had a terrible time grasping the wonderful world of decimal points and we did have to point out a lot of examples like the one you described. We had to spend a lot of time working with her, but she’s doing fine now- at fourteen she’s just shy of an A in math.
Not everyone has parents that can or will take the time.
Twist:
Great work!
Parents are absolutely the key to a kid’s education. Teachers can do very little, if parents aren’t on board.
In the book, ‘Freakonomics’, the author has a great chapter on the power of naming kids… ‘Success’, ‘Loser’, ‘Shanniqua’, ‘Britney’ are all names the chapter looks at.
Turns out, it doesn’t matter what you name your kid. The most important two success factors are, “The age of the mother when she has her first child (30 years or older), and the years of education of the mother” (college grads, of course).
Parenting rules. Schools, not so much.
I also completely believe the story.
Nobody would make a story like that up…it has to have happened.
It is hard to comprehend that a person is convinced that 6 is a larger value than 7. I believe that this person has some sort of brain abnormality. A person on this post mentioned a lack of 7th grade math. I see this example as a lack of 2nd grade math.
Just *today*..!
This isn’t a math example, but another general example of how stupid the general public can be sometimes (including myself and all of us at some point or another, I’ll even wager).
Just today, a friend of mine was lining up at his local office to apply to get a social security card. The person in front of him in line was explaining to the attendant how she had lost her social security card, and wanted a replacement.
Okay, fine, so could she please show some other documents proving her identity? NOPE! She didn’t bring any. None. Whatsover.
She then went on to give a long-winded explanation as to why she had forgotten to bring any documents, yadda yadda, obviously hoping that the clerk would just feel sorry for her or something and take her at her word.
Seriously, what kind of person expects that they can get a key piece of government-issued identification with absolutely nothing to prove who they are? (In that case, my name is “Brad Pitt”, and I would like a replacement security card, please….)
Back to the topic at hand… Yes, stupid people are everywhere (I have even been guilty at times, no doubt!). I still believe that somebody was completely tripped up by the decimals.
>>It is hard to comprehend that a person is
>>convinced that 6 is a larger value than 7
AH! But to be precise, that is not what this article would have you believe.
The person was convined that 6.625 was larger than 7.5 !!! That is entirely different, especially if you do not understand decimals.
Why, all other things being equal, if you take the decimal away (if it is a mystery to you, just ignore it!)…you suddenly have:
6625 and 75.
Everybody knows 75 is a lot smaller!!
Mike,
Good point, you have just proved that not only are people uneducated, but they also lack common sense.
Igor’s word “stupid”
>>you have just proved that not only are people
>>uneducated, but they also lack common sense
My ma and pa would be proud that I’ve proved that. Um… maybe.