How brokers can protect clients from predatory refinance lenders

Somewhere between the last rate move and the next one, a borrower who should be your client is picking up the phone for someone else. A radio ad quoted a number that does not exist. A call center loan officer will not let them hang up. By the time they call you, the damage may already be done.

Chris Sbonek (pictured top), president and CEO of Mitten Mortgage Lending in the Detroit area, has spent eight years trying to stay ahead of exactly that. Brokers who wait for clients to come to them, he said, are handing business to lenders whose only strategy is volume and pressure, and the borrowers who get caught in the middle rarely know what happened until it is too late.

He knows this because he has seen the paperwork.

Sbonek recently walked through the loan history of a couple from his hometown, south of Detroit. They bought a house two years ago at around 7.5%, putting 10% down on a roughly $350,000 home with a $315,000 balance. Six months after closing, their lender called. They were told their escrow account needed fixing and that a refinance was the way to do it.

"They called and told them that their escrows were going to get readjusted and that they should do this refi to fix their escrows," Sbonek told Mortgage Professional America. "It's too early. Six months later is too early. The city probably hasn't even reviewed it yet. They don't even know the value changed yet."

What the paperwork actually showed

The rate dropped half a point, to 6.998%. The couple refinanced again six months after that. By the time Sbonek saw the full file, there were two points rolled into the closing costs of the second refinance. The loan balance had climbed nearly $40,000 above what they originally borrowed. None of that money went into their pockets.

"From the purchase of their house to about one year later, they had lost $38,000 in equity," Sbonek said. "Their loan amount was almost $40,000 higher than what their loan amount was previously. They didn't get any of that money. It went to escrows and lenders and whatever."

Each refinance had been built around escrow projections already out of date by the time the loan closed. When winter tax bills came in, having more than doubled from $3,000 to $7,000 since the previous owners held the property, the couple came up short. A title company had also collected a tax payment and never remitted it. Sbonek helped them track it down, but there was no equity left to work with.

"They don't have the equity to sell their house," he said. "They can't do anything."

Those clients had no reason to doubt what they were being told. No one had called them first.

"If you feel like you're on the phone with a salesperson, you should get off the phone," Sbonek said. "You should call someone who does what we try to do, which is educate people."

Getting to clients before the radio ad does

Sbonek's approach is to call past clients before they have a reason to refinance, not to pitch anything, but to get their mortgage statement on file, understand what their goals are, and agree on a rate threshold worth acting on. When rates move, that conversation is already done.

"Someone might just be sitting there wondering why Chris hasn't called me yet," he said. "Well, it's not the time to refi. But they don't know that because when they flick on the news at night, they hear mortgage rates have reached their lowest point in three years."

With the Middle East conflict pushing bond markets around, a window for a refinance can open and close in the same day. Call centers use that to push clients into decisions on the spot.

Sbonek does not.

"A lot of these call center guys are going to say I'm a bad salesman for this," Sbonek said. "But I would say, sure, go ahead, talk to your wife. I'm not worried about losing your sale over it."

A client with a $400,000 loan who takes too long to decide can watch 50 basis points disappear by the afternoon. The rate that was free is now $2,500 in cost. Getting to clients before the window opens, not after it closes, is the whole point.

"I don't want it to be time for you to refi yet, but I need to call you," he said. "Give me your mortgage statement now. Let's talk about your goals now. Because your financial situation could change for the better, or it could change for the worse."

Those early calls also nail down a threshold. If a client says they are at 6.99% and will not move until the rate starts with a five, Sbonek logs it and waits. When the market gets there, he is ready.

"All it takes is one radio ad with one number that they hear that's not even real," he said. "They pick up the phone, and now they're on the phone with one of these guys that's just going to sell, sell, sell. Next thing you know, you're getting a 5.99%, but you're paying three points for it. But you don't know that."

Sbonek acknowledged it has cost him deals over the years. He said it has also built something that a call center cannot replicate.

"Mitten Mortgage Lending was built and started and founded on just doing the right thing by our clients and our people eight years ago," Sbonek said. "And trust me, there's plenty of times where we've lost money by doing the right thing. But I think we've made a lot more money in the long term by doing the right thing. And the best part, I sleep really well at night."

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This article is part of our Monthly Spotlight series, which in May focuses on refinance products. Full coverage can be found here.