Mortgage Confidential: I smell a rat

Mortgage expert David Reed invites Walletpop readers to ask him questions about real estate financing. Leave your questions in the comment section of this post.

Q: I'm either looking at a good opportunity or a potential rip-off, and I'm not sure which it is. Perhaps you could help me sort it out? In January of this year, we attempted to refinance our home to help us pay down some substantial credit card debt. To make a long story short, our house appraised for a lot less than we thought it was worth, so the finance company wouldn't make the deal. And, as it turned out, that was okay, because we've taken a couple of other options, paid our debt down, and are okay, for the moment.

But, suddenly, I'm hearing from another loan officer at the company where we had attempted our refinance. According to the message he left me, he's been reviewing our file and doesn't understand why the previous loan officer didn't offer us some kind of deal that could have been approved. He says he can help us.

I'm smelling set-up, but I could just be reacting to all the negative press about sub-prime mortgages, etc. Is it common for loan officers at a finance company to compete in this fashion?

I've not returned the call, yet. What should I do? -James

A: I smell more than a set-up, I smell a rat. Understand that loan officers don't make any money unless they close a loan. When they don't have any new business coming through the door they have to go find some. This loan officer is doing just that, trying to get your deal in the door and then try and figure something out later. (I doubt that the other loan officer is still employed with the company.) If the lender 3 months ago couldn't find the value they can't find the value now.

If you'd like some extra money out of your home to pay some things off with, leave your current mortgage alone and explore a home equity line of credit (HELOC) . The loan officer doesn't make any money on HELOCs so that's why he's not pushing it. He's wanting to refinance the whole banana. I think you did the right thing by doing nothing and paying down your debt the old fashioned way.

Real estate finance expert David Reed is president of CD REED Mortgage Bankers in Austin, TX and author of Mortgage Confidential: What You Need to Know That Your Lender Won't Tell You and Mortgages 101: Quick Answers to over 250 Critical Questions About Your Home Loan.

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