Vacation Mortgage
Jillayne Schlicke on 03 13, 2007
I just heard a KIRO 710 AM radio ad from a mortgage company promoting their new product, a “vacation” mortgage. “Do you need a vacation from your mortgage? That’s right we give you a 12 month vacation from making your mortgage payments! Imagine what you can do with the money you’ll save: pay off credit card debts, start a new business, or take a vacation.” !!!!!!!??
I could only hear a few of the words at the end of the radio ad because there’s background music running alongside it. You know what I’m talking about: “prepaymentpenaltyapplies” or whatever the required disclaimer is on this loan type.
[photopress:mainimage1.jpg,thumb,alignleft]So I decided to call the company. “It’s a great day at X mortgage! How may I help you?” I was transferred to a loan officer who first wanted my full name. I gave him only my first name and explained that I wanted to know more about this mortgage before I gave him my full name. He said that before he could tell me about the vacation mortgage, he would first need to see if I qualify for it.
I insisted that no, I did not want to be pre-qualified for a mortgage, I just wanted more information about the vacation mortgage since there’s nothing on his company’s website that explains what a vacation mortgage is all about.
So I tried to guess at it. “You mean I don’t have to pay my mortgage payment for a year?” He said, “Actually we give you a credit.” I tried again: “So if my payment is $2100 per month, you give me a $25,200. credit?” “Well,” he said, “that depends. First I would need to prequalify you.”
AAAAAAA! It’s not a credit if the homeowner still has to pay it back. They must have meant, the $25,200 is taken out of the equity on your home, your mortgage is paid 12 months in advance and that amount is added to the loan balance, then you repay it amortized over the life of the loan.
[photopress:200px_Callme_1_2.jpg,thumb,alignright]This just seems more like a bait and switch type of loan. But then, it wouldn’t be a great day at X mortgage company.
Rhonda, can you help me understand what these loan products are about? I don’t need a loan quote. Instead, I’d like to know if these loans carry higher rates and fees, if they come with a hard or soft prepayment penalty, and if the lender is taking the $25,200 from the homeowner’s equity up front. Even so, I will bet that there’s a minimum credit score required as well as some equity such as 80% loan-to-value. I mean, if a homeowner wants to take equity out, why not do a straight cash-out refi, and set the money aside for a year and make regular, automatic deduction payments.
About the Author: Jillayne Schlicke
- Author's website: http://www.ceforward.com
- More posts by Jillayne Schlicke
- email the author
24 Responses to “Vacation Mortgage”
Leave a Reply
Live Comment Preview
Popular Posts
Recent Posts
Recent Comments
- Rhonda Porter: you must be so excit
- Jerry Gropp Architect AIA: Hi Rhonda- Good to s
- Chris Cliff: I am glad to see the
- Leanne Finlay: Tim, eventually I'll
- ARDELL: Craig, Proof of t
Jillayne,
I am glad that you noticed the add, when I saw it I think my mouth hit the floor! This is not the only add there are a couple of similar ones running right now as well. I do not understand how a company can run their business where a future customers has to give blood just to get product details. As a consumer I would not want to do business with a company that acts shady from the get go. Buyers Beware, Buyers Beware!
Welcome to the mortgage business..making used car dealers look good since 1999.
The real question is do they qualify you based on the initial payment of $0? That would do wonders for my DTI ratio.
In a previous article about those highly successful banner ads by lowermybills.com, I said that the rules (federal and state advertising laws) by which we play the game of mortgage lending advertising have collapsed
http://www.raincityguide.com/2007/01/13/the-ethics-of-ambiguity/
If there’s no oversight or enforcement, then why bother having a law?
Why not just let mortgage lenders advertise 0% interest rate, 0% APR, 0 down, 0 due per month.
Oh, that’s right. They already are.
.
Consumers are going to continue to see very agressive advertising as lenders try desperately to keep money coming into their businesses.
Jillayne… I’m running into a brick wall. I called and was put on hold for several minutes and then placed into a voice mail. Then I sent an email, stating I’m interested in the vacation mortgage, have excellent credit, yadda yadda yadda…. here is the response:
“Thank you for your inquiry. I’d be happy to explain our “Vacation” loan product however, it would be better to speak to you over the phone. The reason for this is I need to know some information about your refinancing goals so that when I give you information regarding this program and interest rates, I can also give you the correct APR, costs, etc. At [XYZ] we adhere to certain standards which are required by the Washington Department of Financial Institutions as well as our own strict standards of giving our borrowers the “whole” picture based on their loan scenario.
[XYZ Mortgage] is affiliated with hundreds of lenders nationwide and our “Vacation” loan product is only one of thousands of loan products we offer. Not every loan out there is going to be the “right” loan for all borrowers and our affiliation with our network of lenders allows us to tailor different loans to different borrowers and their specific needs.
If you can give me a call, we could discuss your individual needs and see which loan product will help you achieve your goals.”
I have replied to the email to let this person know that I’m only interested in the vacation loan and that I’m very familiar with other types of mortgages…I’ll let you know if I receive a response.
I can’t figure out what they’re doing that would make any sense at all. I just love how they reference DFI as a reason to not provide me any information. In my message, I told them that I’m not interested in the rate, apr, etc…just how the “vacation” mortgage works.
Isn’t it time that the mortgage industry put a stop to all of this? Between interest only mortgages, and lenders granting loans to people who can’t afford the payments, I’ll bet we’re going to see a lot more foreclosures…
Jillayne, I’m not getting ANY response. I wonder if we could enlist someone from SBB to give them a call?
Hi Susan,
Thanks for the mention on your blog. I had a 45 min interview with Reuters yesterday and answered your question with the reporter.
I’m off to watch the dress rehearsal for the school play, I have both daughters in the cast of Grease with my 13 year old cast as “Sandy!” So I must run, but I will post a longer response tomorrow.
Would anyone like to call the mortgage company I mention in the ad and see if you can get more than Rhonda as to what the heck they’re selling? If so, send me an email tonight at jillayne at gmail dot com and I’ll give you the name of the company.
They won’t answer via email unless you willing to let them run your credit…and that’s the last thing I would let them do. Plus, it’s not needed if you’re just curious about how a program works and you’re not even asking about the rate! Good luck to whoever takes this on.
Hi Susan,
In answer to your question, we live in a capitalist economy surrounded by a democratic political system.
Under our current system, the purpose of a corporation is to return a profit to its shareholders within the bounds of the law. Sure, there are corporations who do “good” things like provide jobs for workers and donate money to charity but even the charity work is done for one purpose and one purpose only: to support profit growth.
Subprime lending was very profitable. Now we’re seeing the results of relaxed credit standards in the form of less profits for shareholders.
If subprime no longer serves corporate profitability, corporations won’t lend money to subprime borrowers, and in fact we’re seeing that happen right now.
There is no perfect middle spot. In the narrative history of mortgage lending, the pendulum swings back and forth. We’re swinging towards tighter underwriting guidelines. Once credit tighten up, this will fuel another demand for subprime (because it will once again be profitable) and the cycle will start over again.
Recap: In a capitalist system, what’s profitable is “good” and what is not profitable is “bad.” Economics drives morality.
Thanks, Jillayne,
I hear ya…sad state of affairs!
Well I haven’t had anyone take me up on the request to call the company and try to get more info. I tried, Rhonda tried, and we have nothing.
I wonder if there’s a rule/law that says a mortgage company must explain their advertised loan program to consumers without demanding that a consumer apply/prequalify.
I will check on that.
I found nothing in the MBPA RCW 19.146 (Mortgage Broker Practices Act for WA state). I did find this next section from the WA state Consumer Protection Act (RCW 9.04.050) about false, misleading, or deceptive advertising.
However, this still doesn’t help because the ad is possibly not false nor misleading but we don’t have enough info yet to know for sure.
http://apps.leg.wa.gov/RCW/default.aspx?cite=9.04.050
It shall be unlawful for any person to publish, disseminate or display, or cause directly or indirectly, to be published, disseminated or displayed in any manner or by any means, including solicitation or dissemination by mail, telephone, electronic communication, or door-to-door contacts, any false, deceptive or misleading advertising, with knowledge of the facts which render the advertising false, deceptive or misleading, for any business, trade or commercial purpose or for the purpose of inducing, or which is likely to induce, directly or indirectly, the public to purchase, consume, lease, dispose of, utilize or sell any property or service, or to enter into any obligation or transaction relating thereto…
If there’s not a law, there should be one. How much more “bait and switch” can you be if you advertise on the radio a program and then won’t even explain it unless you can run someone’s credit and to recommend other programs?
We would need an attorney specializing in consumer protection to take a look at all the underlying case law in order to figure out if what they’re doing is violating any known law.
The legal question would go something like this, “can a company advertise a product or service and then require the consumer to provide deep level financial and personal information to that company just to receive information about the advertised product or service?”
If the answer was ‘no’ then we can try to apply the same theory to a different medium. Real estate is a service. Then real estate agents would be able to advertise a service and then require deep-level financial information and personal information before giving the consumer any information about the advertised product or service.
Purchasing a product. Retail car salesmen/women would be able to require deep-level financial and personal information from consumers before explaining their car loan programs.
With this company, consumers are asking for information about the loan product advertised.
Doesn’t it seem unfair that a consumer would be required to become prequalified first?
On the other hand, I DO see how a mortgage company would want to NOT waste time talking with consumers over the phone who don’t want a loan but are just shoppers. Hmm. You’d think if the loan program were good, then they would WANT the shoppers.
What do RCG readers think?
Jillyane,
Heard one yesterday from one of my clients that a lender DID prequalify before I started working for them, but lender refused to give rates and refused to tell them their credit score afterward. Their response “your credit score is ‘good’ and ‘rates are not that much different between 5 year, 7 year and 30 year’ so you don’t need to know that”.
My advice was to not even talk to that lender again, though they did run his credit. Talk about not wanting to be shopped!
Is my opinion too severe? I figure once you have a “bad taste in your mouth” over someone’s business practices…RUN!!
Okay, Jillayne…I have a few more clues…but not all the answers. The person I’m dealing with at XYZ mortgage responded to me after I sent him an email saying something along the lines of “I know XYZ is so reputable, this could not be a case of bait and switch…but you’re not providing me info on the Vacation Mortgage…” Here is the response I just received…
“Hello Rhonda,
I have been busy but not to busy to respond….
With regard to “bait & switch”, the program is available so; I’m not trying to bait& switch you.
The loan product in question is an Option ARM. You have the option of paying principle and interest, interest only or a minimum payment which is substantially lower than the interest only option. If you choose to make the minimum payment, XYZ Mortgage will credit you the amount equal to 12 months worth of the minimum mortgage amount.
That’s basically how the loan works but certainly not in anyway the whole picture. I would need to know more about your individual borrowing scenario to be able to explain rates, APR, etc. Please call me if you’d like to discuss your loan needs.”
I sent him an email asking “one last question”… How on earth can they pay the 12 months minimum mortgage payment? It HAS to be rebate and/or priced into the rate. I’m having the hardest time with this!
The good news is that in your class today, no one seemed to be aware of their ad…it must just insult our ears since we’re in the biz?
Let’s seeeeeee. Aren’t retail originators AND banks/lenders suppose to be qualifying borrowers based on the adjusted rate and not on the initial start rate?
I would then venture to guess that a low percentage of callers actually qualify for the “vacation” mortgage and are steered to other mortgage products……unless everyone is still underwriting based on the start rate/payment.
Rhonda, how strict or lax are banks/lenders with underwriting based on last fall’s mandate from federal and state regulators to qualify borrowers based on the adjusted rate?
Thank you so much for probing into this for RCG readers!
Our current guidelines may differ from lender to lender. For the most part, we are not qualifying borrowers based on the fully adjusted rate with ARMs. We are, of course, disclosing and explaining what the fully indexed payment may be. We are not the type of lender who specializes on Option ARMs, I would be out of turn to really comment on them. One of the lenders that I work with quite a bit does qualify option ARMs at the fully indexed rate.
With a standard fixed period ARM, if the LTV is less than 80%, the borrower is qualified at the start rate; if the LTV is more than 80%, the borrower is qualifed at the second year rate (so if the ARM has a 3 year or longer fixed period, it would still be qualifed at the start rate). I do expect that eventually we may be qualifying these products as the fully indexed payment eventually.
As of today (4:05 pm 3/20/2007), this does not appear changes for conforming ARMs.
Subprime ARMs…”Freddie Mac’s new requirements cover what are commonly referred to as 2/28 and 3/27 hybrid ARMs, which currently comprise roughly three-quarters of the subprime market. Specifically, the company is requiring that borrowers applying for these products be underwritten at the fully- indexed and amortizing rate, as opposed to the initial “teaser” rate.” This is effective Sept. 1, 2007.
Subprime ARMs and 5/1, 7/1 and 10/1 ARMs are two different animals all together. We can bet there are more changes coming down the pike!
[...] Last but not least…we’ve finally uncovered the “vacation mortgage” mystery! With this program, they also offer to give you 12 months off of your mortgage payment as a “credit”. It’s very easy for this type of lender to do. At $79 a month, 12 months of mortgage payments would be $948. It’s simply priced into the loan by rebate, margins or the prepayment penalty. [...]
Thanks for shedding a light on yet another type of scam in the mortgage industry. Gimmick loans like this and option arms suck all the equity out of the owners house and basically turn them into renters that are forced to refinance and lose even more money later on. I’ll make sure that any associate of mine that mentions the vacation loan will get educated as to what they are stepping into.
[...] Leads are also generated and sold by using deceptive mortgage spam, direct mail, direct home fax, deceptive radio ads, and so [...]