The brokers: Would you get your mortgage from this man?
One broker calls the industry "a disaster," and he'll tell you so on the radio.
(Money Magazine) -- Morning commuters in Boston, Chicago and Phoenix are slapped awake by the voice of a pugnacious Texan shouting out of the radio. "When your mortgage payment goes up 400 bucks a month, you can dislocate your jaw and swallow it like a snake eatin' an egg," the voice says. "Or spend another seven grand and have some predator redo your mortgage. Unacceptable."
The voice belongs to Jon Shibley, 39, the president of Lenox Financial Mortgage. Over 13 years he's built his business from a one-man shop in Atlanta into a 200-employee company that arranges mortgages and refinancings in 24 states.
Up until the 1980s, when the savings-and-loan crisis brought the old system crashing down, getting a mortgage typically meant sitting down with a loan officer from a local lender, which cared a lot about your ability to pay. Today about 70 percent of mortgages are originated by a mortgage broker.
It's an intense, fast-moving business and suits the hypercharged Shibley just fine. Shibley meditates 20 minutes a day but also claims that he will occasionally burn himself or immerse his body in ice water - "a shock to the system," he calls it - that keeps him engaged.
Shibley doesn't rely on word-of-mouth or community roots. He drives his business with in-your-face advertising. These days, as his commercials show, his sales targets include borrowers looking to escape onerous payment hikes on their variable-rate mortgages. "People don't know who to call," he says. "That's why my marketing philosophy has been so successful."
For better and for worse, the new mortgage sales machine made it much easier to get a loan. And if a mortgage option was mathematically possible, a broker made sure you knew about it. He or she could get you a low annual rate, help you avoid a down payment or find you a super-low initial monthly payment.
Shibley's particular pitch is "no closing costs," which looks to be an easy sell to borrowers suddenly short on cash. "This industry is a disaster," he says. All these mortgage options can make sense in certain circumstances and hurt you in others. (You may actually prefer to pay closing costs, for example, if that gets you a lower rate and you plan to stay in the loan long enough to work off the costs.) The tricky part is figuring out which loan works for you.
A good mortgage broker can help you do that, and Shibley says that's what his people do. But not all brokers will. Brokers can be paid more if they can convince you to pay a higher rate than you qualify for, or borrow more money than you need. And they resist efforts by lawmakers to give them a fiduciary obligation to act in the borrower's best interest.
"We do not solely represent the consumer," says George Hanzimanolis, president-elect of the National Association of Mortgage Brokers.
In short, it's best to shop around - and it's easy enough to do that on a basic fixed-rate mortgage. It's a lot harder to comparison-shop loans with payment options and variable rates, which is why brokers love to sell them.
With option ARMs, borrowers tend to focus on the introductory rate and minimum payment, and to ignore the higher rate down the road. For the broker, that higher rate could mean the difference between a $3,000 commission and one several times as large.
"Option ARMs are not a license to steal, but once a customer asks for it, I know I'm going to make four times as much," says Jim Moore, a Grand Rapids broker who writes about his business at miamibeach411.com, speaking by cell phone. "It's what puts me down here at Best Buy buying a 40-inch flat screen."
Even then there are usually limits to how much your broker can get out of you. After all, a mortgage is based on the value of your house. But maybe there's a way around that too.