"Bloomberg Personal Finance"
February 16, 2002

Home Equity Borrowing: What to Watch Out For

MODERATOR: With interest rates remaining low, a lot of Americans are borrowing against their home's equity. But when it comes to this kind of loan, there can be pitfalls to watch out for. Michael Moskowitz is the president of Equity Now, a direct mortgage lender. He joins me now with some advice. Thanks for joining us. First of all, could you explain the differences between a direct mortgage lender, a mortgage broker and a bank?

MICHAEL MOSKOWITZ: The difference between a direct mortgage lender, a broker and a bank is a direct mortgage lender is somebody who, usually a mortgage banker or a bank, who has the ability to make the loan, make the underwriting decision and grant you the loan. A mortgage broker is a financial intermediary, a middleman, who basically fills out the paperwork and forwards it to a lender for them to make the loan.

MODERATOR: Now, I've heard stories of people going to the bank and finding that there are massive delays in getting anything approved, they have a big backlog and quite often they don't get the best options as far as interest rates and terms. Is that one of the things people should look out for with banks?

MICHAEL MOSKOWITZ: Yes. It's been happening with many of the large banks who found themselves backed up by as much as two months. So what happens is you lock in a rate for 60 days and you can't close for 75 days. Well, you may not get the 6-1/2 that you locked in, which has been a problem.

MODERATOR: Now then, you have brokers, which are essentially middlemen. What's some of the things people should look out for when dealing with brokers?

MICHAEL MOSKOWITZ: When dealing with a broker or dealing with anybody, get it in writing, get it up front as to what are you paying. Know what you're paying. It's the biggest purchase you are making, be it a refinance or purchase, the largest probably transaction you're making. Get it in writing, the timeframe. If you're locking in a rate, make sure you can close by that time. When you're dealing with a broker, make sure you know the fees that you're paying for the broker because the broker may by raising your rate at the last moment, they benefit from it financially. So if they promised you 6-1/2, you end up closing at 6-3/4, or rates went down and you should get 6-1/4, they will get paid from the bank for delivering a higher rate to them. And you're going to lose out.

MODERATOR: So just like buying a car or buying anything else through a middleman, you're going to end up leaving some money in somebody else's hands.

MICHAEL MOSKOWITZ: Yes, maybe more than you would imagine.

MODERATOR: Now going the direct route, are there people that simply are not even eligible to go the direct route?

MICHAEL MOSKOWITZ: Everybody's eligible. Or you could call mortgage bankers. You can call the banks. When you're dealing with mortgage bankers, you should try to deal with a larger, established mortgage banker with a good reputation as in everything else.

MODERATOR: So when you're thinking of doing something like an home equity loan or going out for a mortgage, what do you advise people to do as far as those that are afraid of taking such a big move like that?

MICHAEL MOSKOWITZ: I would advise to talk to your friends, see who had a good experience and who didn't have a good experience. Check with the Better Business Bureau, check with the banking department of the state, do extra work. It always pays.

MODERATOR: Are there differences among companies that call themselves direct mortgage lenders?

MICHAEL MOSKOWITZ: Yes. The difference is there are some direct mortgage lenders out there who really don't make the lending decision. They may have the ability to make a loan, they have credit lines, but the underwriting decision is made somewhere outside. You want to deal with somebody who makes underwriting decisions on premises and can do it quickly.

MODERATOR: Thank you very much. Michael Moskowitz is the president of Equity Now. And that's going to do it for this edition of Bloomberg Personal Finance. I'm Lane Pejardi in New York. Thanks for watching.