THE GAMES LENDERS AND BROKERS MAY PLAY

A dash of smarts for the Money Hungry

Do Mortgage Borrowers Have Bargaining Power?

by Jack M. Guttentag

Posted on Wednesday, August 27, 2008, 12:00AM

 

What exactly should mortgage borrowers use their bargaining power for? A consumer negotiating the terms of a mortgage with a lender or mortgage broker (henceforth "loan provider") is in what economists term a bilateral bargaining process. Only two parties are involved, and the terms arrived at depend in part on their respective bargaining power.

Bargaining power is the power to influence the terms of the transaction by threatening not to do it. The bargaining power of borrowers is inseparable from the knowledge that they have it and their willingness to use it. Borrowers entering transactions with the mindset of petitioners seeking favors are not aware of having bargaining power, and as a result do not have any. They have potential bargaining power, which does them no good.

The potential bargaining power of borrowers is greatest on a refinance, because typically the borrower has no time limit on when the money is needed. This usually means that they can break off negotiations with one loan provider and begin with another without being seriously inconvenienced.

The Right of Rescission

In practice, many refinancing borrowers are solicited by loan providers and are unaware of their options. Abuses in connection with refinance solicitations were once so common that Congress decided to protect refinancing borrowers by allowing them, within three days of closing, to rescind a deal with any lender other than the one holding their current mortgage. Borrowers who rescind have the right to recover all monies they have paid out in connection with the transactions.

The right of rescission is an extremely powerful tool that strengthens the potential bargaining power of refinancing borrowers. Unfortunately, most refinancing borrowers are not aware of what it does for them, and very few exercise it.

Home purchasers, at the early stages of loan shopping in which they select their loan provider, have much the same bargaining power as those involved in a refinance. However, as the period to closing shortens, purchasers lose their bargaining power. They need the loan proceeds on a specific day -- the day on which the contract of sale says the transaction will be consummated -- and if there no longer is sufficient time to start the process again with a new loan provider, they are stuck.

When Mortgage Terms Change on You

Once past this point, the loan provider is in the driver's seat. Both parties know that failure to close means loss of the house along with any deposit the purchaser has pledged. My file is stuffed with cases of home purchasers who had the mortgage terms changed on them when they were past the point of no return. Purchasers should finalize their negotiations, which means getting them down on paper, well before they reach this point.

What exactly should mortgage borrowers use their bargaining power for? In dealing with a lender, it can be anything the borrower is concerned with, but most borrowers would do well to focus on shutting down the two principal games that lenders play to improve their profit margins. One is to escalate their fixed-dollar fees, which existing rules allow them to do with impunity right up to closing. Borrowers can eliminate this game by requiring the lender to guarantee total fixed-dollar fees in writing. The total is all that matters; no fee-by-fee breakdown is necessary.

The second game is price low-balling, where lenders quote a rate and points below what they are prepared to deliver. (Points include all fees expressed as a percent of the loan amount). Since the market changes frequently, lenders cannot be held to a price until the borrower is ready to lock, which usually requires approval of the borrower's application. When the time comes to lock, the lender raises the price to a more profitable level, explaining that that is the current market price.

Beating the Game

To beat this game, the borrower needs to know exactly how his price will be set at the time it is locked. "We will price you at the market on that day" is a common but not adequate answer because it doesn't tell you anything you can check for yourself. "You can check the price we lock for you on our Web site," is a good answer, since they are not going to mess up their Web pricing program just to fool you.

In general, it is easier for borrowers to use their bargaining power to eliminate mortgage broker games than lender games. You need only to establish the broker's total fee, including any fee paid to the broker by the lender, in writing. This protects the borrower against low-balling by broker or lender, and prevents fee escalation by the broker. The borrower should also require the broker to guarantee the lender fee as soon as the lender has been identified.

THE 31ST BEAR MARKET

Thawing out the economy and the credit freeze.

Market's going nowhere until that happens. Bill passage of Son of RTC shrugged off amid bigger concerns. The market otherwise is reacting on an hourly basis to news or issues... Concerned with how do they mark to market -what is something worth when nobody gives you a bid? Thats' why Paulson was in hurry up mode... How can the market "discount" a credit freeze? It appears some of these issues have no precedent, and on top of all this it's an election year. And no help from the naked shorters and the Hedge funds who are driving the individual investor out of this market for good.

The typical diversified investment portfolios that many of us still have ( or what's left of it ) cannot withstand 300 point moves up and down, and a vix over 46. Even becoming traders who learned to short and do options offered only limited protection against the sheer breadth of the hedge fund world.

Also .how and when do the banks get back into the business of banking? Are they ready to re-enter here? As for you the investor, who just a whopping part of your net worth. There have been 30 bear markets since since 1930's all down an average of 35%... every once in five years the market will tank -that was this year... The market will slowly being to turn around looking longterm - ass soon as liquidity and transparency emerge. GE 3 buffet billion richer announces Thursday... hmmmm

And while all this is going on the massive redemption of the dreaded soon to be history hedges ( be still my heart) is making more waves than anything else out there. And they never should have been allowed to get THAT big.

GOOG'S NEW CHROME DOME

Google puts its best foot forward and crushes the competition's toes.

Google throws its chrome hat into the ring with Firefox and IE

Tsk tsk… some people never learn… Never vote against Google… either the company or the stock… From what I can see, Google Chrome is and will remain the fastest browser available as it will include the new Webkit 4 engine, the beta are already faster than Firefox's TraceMonkey!

And have you seen the stock lately? Although it may be a little frothy for most, there is still a lot of good news to come in the months ahead for this incredible company…

If you buy any google from this, may your trojan horse poop all over your petunia beds.

Chrome

ROCK STAR VP TONIGHT

Ex soccer Mom kicks Obama antics off the front pages

Take notes Hillary and see how it gets done the right way…Palin pushed her head thru a glass ceiling without a scratch... Okay so she’s not the bond queen going back to work three days after giving birth... but ya gotta admire her work ethic!

And I haven’t seen that hairdo since I wore it back in the 60’s with Revlon Persian melon lipstick.

She reminds me of some of the characters from Northern Exposure, my favorite TV show.

ANGELS

And Cakes

8 egg whites
1/2 teaspoon cream of tartar
2 teaspoons butterscotch essence

1 1/4 cups sugar
1 cup flour sifted

Preheat oven to 325F. Butter a tube pan with Pam (oil/ butter spray).

In a large grease free bowl beat the egg whites with an electric beater till foamy. 

Add the salt and the cream of tartar. 

Beat on high speed until the egg whites form into soft peaks. 

Add extract. Gradually add the sugar. Beat stiff peaks.

With a rubber spatula gradually fold in the flour. 

Spoon the batter delicately into the tube pan. 

Sprinkle the top of the batter with a little cinammon and place immediately in the preheated oven. 

Let bake @ 45 minutes or until a cake tester comes out clean.

Immediately turn the cake out of the pan. Enjoy.

FOOD NETWORK TARGETS WIDE-(ASS) AUDIENCE

Guy Fieri: Your Dive is my Drive By - Paula Dean: Temptress to your inner fattie

So who in their right minds watches Paula Dean? That’s easy - people with eating disorders! They get to “eat” vicariously thru Ms Piggy where she grunts and groans each orgiastic deep fried buttered frittered dipped in lard mouthful of sin...when she’s not swallowing she’s either skewering the English language with a regional accent thicker than the plaque on her main artery or giggling thru some perfectly dreadful anecdote about her swamp life down in murky sticky Savannah and her two swamp offspring.

I fear a deep fried palmetto bug may be her next victim to hit the fryolator...

The ones controlling our MS Piggy’s strings are of course the folks at Food Network who make no apologies for her food choices or using products that are health risks. No big old disclaimer at the front of the show – watching this can be hazardous to your health.

How can this be? They can force McDonald’s to change the fat of their french fries, but Paula pushes the high fat fare without remorse or any responsibility to her ever widening audience?

This may be the new Pfizer cook book which comes with its very own years’ supply of Lipitor But I think the various new shows she recently launched need a new handle – how about Paula’s Type 2 Tasty White Trash? Or Crossing the Diabetic Divide? Welcome to Paula’s ByPass Buffett? 

Not to single out Paula here, the Neely’s are just as down home irritating.

Ah but la crème de la triple crème has to be Guy Fieri... spiky haired Cali-fat dude who aspires to low end ambience types of Diners Dives and Drive-Ins to consume in!

Our charming host hangs out in greasy spoons all across fatamerica all the while chewing with his mouth open, talking with his mouth usually to the chef being “so money,” as masticated cheese meat products fall from his greasy lips.. he seems to wear the rest of it on his poly Hawaiian shirt. The only thing that eats more on his show than portly Guy is the vintage muscle car he blows thru town in. I figure they get maybe a whopper of 15 MPG? Errrrrrrpppp…..

If you buy any Pfizer, may your deep fried palmetto bug bite back.  

REPORT FROM THE WINDSHIELD

For Saturday August 23

Gas was $3.29 at Walmart. Wally world was crowded today... no carts at 3 pm... huge difference from week ago... I bet we see the consumer stabilize from here, and inch up the shopping...yes, inflation will be up but they will adjust with oil down. Master Card and Visa will benefit over Am Ex. Noticed Walmart’s banking area red hot busy… as was the pharma...

 

Back to school stuff was on sale and flying out the door. I noticed a LOT of red tag sales.

 

Lots full at Target, Home Depot and Lowes. It's like the shopper just woke up and stayed in town these final days of summer. Autumn here we come, and so I am off to find some local apples - yum!... No old bin moldy carbs for a crunch the numbers type like Frugals - at these prices, might as well go for the gold... and later I will check out the antiques fair and see if any local old money families are unloading the contents of their collapsing housing market right about now.

 

U-Haul had NO trucks available today...

 

The house across the street sold… the one down the street has two offers…

 

Happy hunting fellow Diana wanna-be's!

 

And gas up NOW for the Labor Day Weekend as oil will go up by then...

 

If you buy any MA or V on this post, the guy helping you with your groceries

will drop your bananas.

 

FruGal...

TAKE OUT

Eat in

To help celebrate the 2008 Olympics I scoured countless Chinese cookbooks, and magazines trying to find the most popular Chinese recipe, and here it is…

The quintessential Chinese meal:

Pour a 1 oz jigger of Chivas into a glass… add water to taste…and voila!

BEAR STEARNS AND JAMIE DID NOT WANT THIS DEAL!

The Feds beat them over the head to make it work

Caught a bit of Brian Burroughs on C-Span concerning his Vanity Fair article on the Bear Stearns demise... interesting points… says Jamie was the reluctant hero (huh?) - both Bear Stearns and Jamie did NOT want this deal but the Feds beat them over the head to make it work…and they did so against their better judgment… Burroughs does not believe in excessive gov’t intervention called the markets a mix of Naked Darwinism and a meritocracy that overall can and does regulate itself… that the government stepped in to make a point, when it get out of whack, a bear Stearns event rattles the foundation. I liken it to every now and then Con Ed explodes a man hole cover to remind us that it works most of the time… is the SEC slow on the Uptick in more ways than one? Hello… Please rescind the uptick rule — enough already… please email the SEC and vote!

MY FAVORITE SHOES

Mind you Mrs Buttons does not wear or own a pair of CROX...

 No Mrs Buttons is pretty conservative when it comes to her feet and has not changed her shoe style since high school: Various iterations of Loafer, Hepburn flats, with the occasional simple black pump for dress.

This time each year she thinks back to treks in pursuit of the perfect penny loafer… I must have taken them out of the box at least a hundred times before the first day… I can still remember how they smelled and how they squeaked as I walked up the street that dreaded first day… the sun bouncing off the penny on top…

Never met a shoe sale I didn’t love… There is NO reason to do otherwise… I have found great values at Marshalls for sneakers and such. Steinmart has some nice everyday shoes. And online I have found everything from vintage saddle shoes, to swing dance shoes. I love bidding on ebay… especially when I am the only one bidding!

They say shoes are pretty recession proof like red lipstick! So keep our economy healthy... buy shoes, Bernanke, Kudlow and I salute you!