Your Mortgage: A billion dollar fine – a reminder that bigger isn’t always better

Mike Miles

By Mike Miles

Being a smaller business in the mortgage industry can sometimes feel like we are overshadowed by the bigger players in the game. While we know we do what we do better than anyone else, perceptions can be skewed that bigger is better.

We originate, process, underwrite and fund residential mortgage loans. The bigger players do the same, but they also sell auto loans, commercial loans, force-placed auto and home insurance, investment products and much more. It must be hard to be good at all those right? Yes, and that’s illustrated with the most recent Wells Fargo settlement announcement of one billion dollars.

Most of the settlement amount involves Wells Fargo’s mortgage practices. It was reported that the company inappropriately assessed borrowers $98 million dollars in rate-lock extension fees alone. What’s a rate lock extension fee? It’s a fee that is owed to maintain a guaranteed interest rate when the rate lock period expires. For Wells Fargo, this means it earned $98 million in revenue associated with charging fees to extend rates.

We might see the possibility of rates needing to be extended in situations involving new construction. Even in those cases, we work with the buyers to minimize or eliminate any added cost. Rates that need extending are typically never the borrower’s fault. In most cases, it’s the lending institution that’s to blame. Either it locked a rate for too short of period or it took too long to close the loan. Bigger isn’t better in this example. Bigger is clunky. Bigger is slow. Bigger doesn’t communicate. Bigger doesn’t care because it thinks bigger is better.

It’s easy to pick on Wells Fargo here because it just made the news due to this immense settlement. This is just one of many “bigger is better” companies out there that conduct business similarly. These firms simply have too many products, too many divisions and too many employees to be really good at one thing … jack of all trades and master of none.

We encourage borrowers to consider looking for local mortgage experts to handle their mortgage needs. However, if you are dead set on using a big company because it feels safe, make sure you’re doing the following to keep yourself protected:

  1. Get a second opinion – compare your proposed rate and cost with a competitor to make sure things line up similarly.
  2. Review your disclosures – two important disclosures are the loan estimate and the closing disclosure. The loan estimate is issued in the beginning and throughout the loan process detailing every single monetary change from start to finish. Make sure you look at these documents.
  3. Ask your loan officer questions – every time you get an updated loan estimate, ask your loan officer any question to make sure you understand. Hin: If your loan officer ever says something like “ummm, I don’t know and let me get back to you,” you may have chosen the wrong lender.

The bigger players certainly have diversity and most of them have happy shareholders, but this often comes at the expense of unhappy customers.

Being small in this situation certainly has its advantage. For us, it allows us to excel at the one thing we do … mortgage loans. That’s all we do. Considering the complexities surrounding mortgages, it’s best to be the master of this one trade.