Several mortgage lenders were recently penalized for preying on our military veterans through television and other media. These shady lenders were overinflating the average savings and expenses when refinancing a VA loan, the special loan available to veterans that’s backed by the Veterans Administration.
Lenders who advertise on TV are typically lenders you will never meet. Lenders that advertise on television are referred to as “Internet Lenders” by real estate agents. Many of these lenders twist the truth to attract customers, offering things like “no cost” refinancing or terms that seem too good to be true. For this reason, most real estate agents caution their clients against using TV/Internet lenders because these lenders often have somewhat less than desirable performance and results. The same type of practice occurred in the early 2000’s, just before the last mortgage crises.
A few of the companies named in the recent complaint include New Day Financial, Nations Lending Corp, and Freedom Mortgage Corp. All of these lenders advertised on television. If you watch TV, you are likely to have seen their commercials at some point. (Though you’re not likely to see them in the future, as they were pulled off the air when these companies were called out for their practices.)
Some of the television ads claimed a no cost refinance and an average savings upwards of $600 per month. After investigating, it was determined the average (hidden) cost to refinance was approximately $6,000 and saved the veteran closer to $90 per month. This means it would take a veteran over 5 years just to break even from the cost of refinancing.
Remember, there is no such thing as an absolute “no cost” refinance, and less trustworthy lenders can use all sorts of methods to camouflage fees.
Internet mortgage companies can’t offer you anything a local lender can’t. As a real estate agent, I can tell you that most people cannot interpret the federally required documents to the point they actually know what they mean, and there are many ways a lender can mask expenses. A local lender is someone you can meet in person, and, in my opinion, is more likely to treat you more truthfully, professionally, and get your loan closed (and on time).
It’s not just veterans that have been targeted by these shady lenders; every homeowner is at risk. Some mortgage companies would lead you to believe that if you can lower your mortgage rate 1/2% under your current interest rate, then you should refinance. That is not the case. A rule to follow is if you can pay back the cost to refinance within about 24 months and you can reduce your interest rate by 1.5% or more, then it might be a good idea depending on how long you will be paying on the mortgage.
Remember this, a great lender does not need to advertise because they get business from real estate agents and referrals. My advice; If you see a lender advertising on TV, be wary of their approach.