August 27, 1999

New book shows the lighter side of lending

By TOM KELLY
The Real Estate Advisor

The reasons for the success of some online mortgage companies can be traced to the ease and comfort of research. Folks can check rates and programs in the cozy setting of the family den. Most of the major lenders concur that an online presence is needed, if only merely to provide the brochure material found at the home-loan counter.

"So many things have changed," said Gordon Schlicke, veteran Puget Sound mortgage banker who is now semi-retired from more than 40 years in the home loan game. "But what hasn't changed enough is the hoops we make people go through to get a loan. Consumers simply don't like it and we have not done enough to change it."

In fact, Schlicke now spends his time sharing some of the craziness he's experienced in his banking career. His new book "The Lighter Side of Lending" ($29.95, The Mortgage Originator) is a compilation of stories and examples consumers have produced in the tense time surrounding a house sale and loan application. More information about the book can be obtained by calling (800) 995-2090, or on the Web.

One of the more comical chapters features the provisions Schlicke has collected from purchase and sale agreements, which are legally binding contracts:

• "Seller to pay of buyers closing costs. Buyer to pay of closing costs. The remaining (for a total of 1!) to be split evenly between buyer and seller."
  
• "Offer subject to buyer qualifying for VA financing or other suitable program which requires no money."
  
• "Seller to leave blond in dining room cabinet which has no value."
  
• "Buyer approval subject only to finding employment."
  
• "Buyer is prequalified and preapproved. In the event financing fails, buyer is to be prequalified and preapproved again within 24 hours."

While these mistakes bring chuckles at his seminars, Schlicke will take dead-aim at government regulation at the drop of a hat. If you really want to get his blood boiling, just mention Truth-In-Lending laws and the Real Estate Settlement and Procedures Act, commonly referred to as RESPA.

"The greatest contribution RESPA made to our industry was to number the lines on the settlement statement," Schlicke said. "That's it. Everything else is still being argued over and refined with each new lawsuit. This is the only rule regulators themselves don't understand, lawyers can't define, lenders can't clarify and borrowers would just as soon not know about. Just using the term RESPA makes some people think we're talking about a respiratory disease."

Schlicke's easy going manner and sense of humor made him a natural as a mortgage personnel trainer. He headed up the national training team for Mellon Mortgage and also for US Bancorp Mortgage before it was acquired by Mellon. In 1983, the Washington State Supreme Court appointed him to represent mortgage lenders on its Limited Practice Board, which he chaired for four years.

"We are probably the most over-regulated industry in America," Schlicke said. "The government feels that all mortgage lenders are part of a grand national conspiracy to screw and defraud all who do business with us. I would be surprised if the Flood Disaster Protection Agency announces that in addition to being responsible for identifying a property is in a flood hazard area, lenders will now be responsible for any flood that occurs in their lending area."

Schlicke continues his work as an accredited course instructor for the Washington Association of Realtors, the Washington State Department of Licensing and the Washington State Limited Practice Board. He also offers some no-nonsense questions to ask before you sign on the dotted line -- especially to those who have not borrowed money for a home in several years:

• How long will you remain in the home? Remember, shorter term means less risk, and thus, a lower interest rate. If you expect to sell within three to five years, a fixed-rate loan may not be the wisest choice.

• Do I qualify for other loan programs? If you can't be with the one you want, love the one you're with -- or in this case, can get. You may qualify for special low-downpayment programs and may not know it.

• Is there a prepayment penalty? After years of this being a non-issue, the practice has surfaced again because of the number of loans refinanced -- twice -- in the past 24 months.

• Does it matter where loan payments are made? Loans can be sold or the servicing rights to the loan can be sold. Because a majority of fixed-rate loans are sold to long-term investors, expect at least one change in address to where you mail your monthly payment. Recent laws require your lender to notify you well in advance of any change in payment location.

• What about late charges? Find out how many days' grace period is allowed. For example, some lenders give you until the 15th of each month to pay your mortgage. (That's received by the 15th -- not postmarked by the 15th.)

• How will my payments be applied? Ask to see your loan documents.

The Note or Deed of Trust should contain a formula that applies to your monthly installment payments. This formula tells you how the lender will use your money to repay the debt.

Remember, when checking your loan options, don't be afraid to ask the same question twice. Ask your loan officer to "explain that in a different way" if you find yourself confused or clueless. Loans may be mandatory for most consumers but rarely are easy to understand -- even if RESPA soon goes online.

Previous columns:

• A new way to hunt for a home, 08-20-1999
• Mortgage rates up, but why?, 08-13-1999
• Insurance changes apply to new loans, 07-30-1999
• Realtors debate Net's role, 07-23-1999
• Are too many millionaires ruining the area housing, 07-16-1999
• New tool in online property marketing, 07-02-1999
• Fixing up the home, 06-25-1999
• A father's gifts to his son, 06-18-1999