TEGO received an email describing a scenario from a borrower who refinanced a $625,000 home in January, 2010. It was a simple refi in which the borrower had a high credit score and a low loan to value. However, the appraisal came in lower than expected and the loan originator told the borrower that because of the low appraisal, their loan terms were changing. They were given 2 choices ?keep the same rate but pay an extra .50% fee, or receive a rate increase of .125%. The borrower paid the .50% fee to keep the rate the same. The truth was that the fee for the lower appraised value was an extra .25% ?not .50% as their loan originator had indicated. But because the borrower had no tool to verify that the loan originator was using this situation to increase their income, the borrower had to pay an additional $3125 for their loan instead of $1563 which was the real increase. Had TEGO been used for this loan to monitor the loan originator’s income, this borrower could have saved $1563 on their loan.
We spoke with a borrower that was relocated by her employer in November, 2009. It is common for the company doing the relocation to pay the closing costs for their employee. An opportunistic lender knows this and will use this to increase their income. Since the relocation package for this borrower included 2 points for a loan discount(to buy down the rate) and 1 point for the loan origination fee, the loan originator who performed the transaction made a total of 3 points. The loan amount was $729K ?so this loan originator generated almost $22,000 in profit on this loan! This is almost 3 times the normal rate. If TEGO had been involved in this process, we would have flagged the excessive loan originator income so that the Borrower and employer could have better negotiated on the loan ?ultimately saving as much as $14,000 on this transaction.
It is common for buyers to renegotiate the sale price of a home as a result of inspections or an appraisal that comes in lower than expected. In March, 2010 we were told of a transaction where the sales price of a house was lowered due to inspections. The new sales price meant a new loan amount for the borrowers which also meant new loan disclosures had to be sent out. The new loan disclosures showed that the loan originator had increased the loan fees by $3,500. When the borrower questioned the loan originator about them, the originator gave a vague response of, “Your new loan amount invalidates your rate lock and rates have increased. To get the same rate you had before is going to cost more.?To the borrower, this sounded like a legitimate reason for the increase. In reality, loan fees do not have to increase for the processing of a loan and this loan originator was taking advantage of an anxious borrower that wanted to finish the process. The borrower, being happy with the new home price, agreed to proceed with the increased fees. If this borrower had used TEGO on this transaction, they would have been better informed that the increase of $3,500 in fees was well beyond the standard for any home loan. TEGO would have given them the information needed to better negotiate, potentially saving them the entire $3,500 in unsubstantiated fees.