Thursday, June 10, 2010

Banks Behaving Badly

The mail is full of pitches, so it seems reasonable to discuss a failed pitch that recently came my way.

One might expect that banks these days would be particularly careful about appearing to be honest brokers. Evidently, they are immune to shame.

Here's yet another sorry tale about mortgage shenanigans.

It happened right here in Clear Mountain. The other day, a FedEx envelope arrived in the mail from Chase. The first clue that something was amiss was that the envelope bore no waybill. In other words, it was merely a bulk-rate letter tarted up as urgent.

Inside was a notice from Chase happily informing us that we could cut the rate on our home loan by a full point and pay No Closing Costs (emphasis in the original). Act immediately, the letter said, and Chase would wave "all fees"—enumerated in the fine print as "any bank fees which means no application, processing, appraisal, credit report or origination fees. Third party costs associated with closing the loan are also waived."

The letter, signed by Jay Roth, senior vice president (of what division, silence) went on to add that any tax or insurance escrow shortages would be our responsibility. More on that bit in a moment.

Now, if you were like me, you'd think that no fees meant no fees. How silly!

I called the number on the offer and eventually connected with Mike, who turns out to be a Chase salesman based in an industrial park in Columbus, Ohio. Mike readily assured me that my interpretation of the no fee refinancing offer was correct: There would be no fees. We would pay NOTHING. He told me to watch the mail for another packet of materials from the bank that would lay out the terms of the new loan.

I was more than mildly surprised when the next letter arrived showing that our monthly payment would rise—not fall—by $1,200 a month. I called Mike. He insisted that the documents were mistaken, that they had been sent basically as placeholders by the bank and that the final documents would reflect the promised savings, which would amount to about $200 monthly.

Poor, misguided Mike. The documents kept making him a liar.

A few days later the wonderfully ironic "Good Faith Estimate" of settlement costs arrived. The amount? $11,429.36. For those keeping track, that's about $11,429.36 more than zero. Chase, it turns out, was generously offering to pick up about $3,300 of that, leaving us with some $8,000 in fees. What's more, our loan value was rising by $8,000--a suspicious coincidence.

I called Mike back. After a few minutes of dancing around the issue, I asked for his supervisor. Chris came on the line.

Chris insisted that I was mistaken. The $8,000 was not a fee but an escrow payment. But if that was the case, I wondered, why was our loan value rising? Escrow is our money, not the bank's, right? Why should I pay Chase interest on my money?

I then suggested to Chris that the deal was looking more and more suspect. He laughed and told me that "hundreds of people" had complained that it was fraudulent, but he swore it was legit. However, he graciously offered to close out our application if that would make me happy.

I hung up and contacted a local Chase branch. The loan officer promised to do some digging and get back to me.

Sure enough, he said--with what I took to be sincere embarrassment--the offer was bogus. Chase was indeed charging fees, as much as $2,000, but hiding them in "escrow" and building them into the new loan. He told me he would be raising the matter at an upcoming branch managers meeting.

Then, he added, his voice dropping to a near whisper, "to be perfectly honest," I should leap at the chance to refinance for only $2,000 in closing costs.

No thanks, I thought. The opposite of perfect honesty is imperfect deception, which is what started all this in the first place.

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