There are many military buyers who feel obligated to work with a "military lender". They might want to read this first...
Unfortunately, there are many ways to fleese a trusting buyer.
Who can you trust? Probably not the sleazy guy pictured but there are others who appear trustworthy who could be picking your pockets.
Most of us, when shopping, search for someone we can trust for good advice and a fair deal. Consequently, there are those who fulfill that need with a trustworthy appearance.
Often advertisements show them holding a cute child or pet.
Some appear trustworthy by company association, like starting a credit union or even better a military credit union.
On Friday, 11/27, I noticed a military federal credit union (FCU) advertising a Zero Point loan for 4.875% with an APR of 4.963% and the FCU would even pay lender fees.
Hmmmm... on Friday, at that rate, they should be paying their borrower's fees and a signing bonus.
The Zero Point APR seemed high to me so I used my APR calculator to find the fees.
The calculation required a loan amount and there was no loan amount disclosed beside the advertised rate and APR so I scrolled down to their detailed disclosure to see what I could see.
Below, in lots of small print, the FCU disclosed a $300,000 loan with a rate of 5.000%, 1-Point and an APR of 5.089. Hmmm... In this example, the APR contained 1 Point but no lender fees or prepaid interest.
So, based on their small print disclosure I also used a $300,000 loan amount and zero allowance for prepaid interest to find the fees on their Zero point 4.875% Rate.
Wow, based on the advertised Rate and APR, lender fees are a whopping $3,000. BUT WAIT.... There's more! Leave us not forget the small matter of 1.75% undisclosed yield spread premium (YSP) that, translated to dollars, is an additional $5,250. How do I know there is 1.75 Point YSP, you ask. Since you asked, on Friday, I know of at least two wholesale lenders offering their approved brokers 1.75 YSP on a 4.875% Rate. If a small, local mortgage broker can find that much YSP then a national FCU should be able to do that or better.
Did I mention that credit unions are not required to disclose yield spread premium?
To recap, let me count the ways this Military Federal Credit Union pissed me off.
- Credit Unions are supposed to be Non-Profit clubs which implies their rates and fees will at least be competitive with other lenders.
- A "military" CU implies it is a private club where our military will receive better deals than elsewhere. In reality, this Federal CU is even more expensive than any of the expensive four big banks.
- $8,250 is a lot of profit on a $300,000 loan; especially from a company that lulls it's customers into a false sense of security that may prevent their "club members" from aggressively shopping elsewhere.
- This CS CU is targeting our young military personnel which is typically an unsophisticated market and that dear readers is a load of BS.
- The APR in their small print disclosure failed to include prepaid interest. Never trust a lender that does not include at least 15 days prepaid interest in their APR when the closing date is unknown. The dollar amount for 15 days interest on a $300,000 loan at 5.000% is $625 and that is a large Whoops at closing.
- This Federal CU may disclose prepaid interest in their good faith estimates but I don't know that because a GFE could not be obtained until the borrower completed a loan application... more BS.
The moral of this story? Let education, facts and figures be your guide... NEVER buy anything based solely on trust. You may choose a lender because you trust them for one reason or another but do not fail to always verify your trust.
Education is the Consumer's Only Real Protection.
Bill Ladewig is a Mortgage Broker Licensed by the California Department of Real Estate 00968137
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